AS the UK transitions to a greener future and with COP26 approaching fast, there’s a window of opportunity for businesses and company car drivers to switch to electric vehicles and take full advantage of what are inevitably time-limited cost benefits.

The list of negatives for ‘going electric’ are rapidly being eroded. As EV sales grow the early adopter tax benefits are starting to reduce, but they are still extremely generous as the Government pushes hard to incentivise EV take-up. Thanks largely to fleet leasing, sales of EVs passed the 500,000 mark this month. See Business Investment Pushes ULEV Sales Over Half Million Mark.

It is no secret that moving from internal combustion (ICE) to electric-powered vehicles (EVs) is going to result in a significant hit on the Treasury’s tax receipts, so there is little question that there will come a time when the Government is going to have to look at ways to increase the tax on ultra-low emission vehicles (ULEVs). Initially incentives will be offset by higher taxes on petrol and especially diesel-powered vehicles, but the balance will shift to a point where this is no longer viable.

Potential ultra-low emission vehicles business purchasers can be put off by the higher list price and headline monthly lease costs of ULEVs compared with their ICE equivalents. As we will show in this feature even though the leasing rates look higher, the whole-life costs to a business leasing a full EV versus the ICE equivalent will work out in the favour of the vehicle with a plug. For the company car driver the benefits are even better. Basically by handing back your diesel company car and going electric, you award yourself a generous pay rise.

Look Beyond The Monthly Rental Cost

At first glance the list price can be a bit of a shocker and this, of course, translates directly into the monthly rental. Taken in isolation the greater lease rentals of electric cars are more expensive than diesel or petrol equivalents, and part of that is down to the use of newer technology and lower economies of scale during production. However, when you take into account the tax incentives, the lower running costs and reduced maintenance Service, Maintenance and Repair (SMR), the whole-life costs of a leased ULEV, and especially a full EV, will save both the employer and the employee money.

Where the company car tax benefit is so significantly in the driver’s favour, the employee can sacrifice some of their tax saving against the balance of the EV’s greater rental. This offers a benefit to both the employee and employer.

Costs Versus Benefits – Winners And Losers

Higher costs

●        The ‘sticker’ price of the car or P11D. An EV will be higher than an ICE equivalent.
●        Monthly rental ‘headline’ rate. The difference in outright cost has an impact on the monthly rental making the EV greater at face value. Unfortunately a lot of people do not bother to look further than this as it is all upside from here on.

Cost savings

●        Driver benefit in kind (BIK) – this is the biggest winner benefiting the employee by thousands of pounds over a typical rental period of three years.
●        Class 1A NIC – as the company car tax is so low, so is employer NICs
●        Electricity. There are numerous incentives being offered to EV owners from utility companies providing discounted tariffs for car charging.
●        Maintenance – overall lower for an EV because there are fewer moving parts, no engine oil to change, etc
●        Exempt from congestion and emission zone charges
●        Often exempt from city parking zones
●        Zero road tax
●        Corporation tax allowance 

What Are The Benefits To A Business?

While an electric company car may make sense from a tax perspective for a driver, they are also more attractive for employers thanks to reduced overall costs and tax allowances.

All cars with CO2 emissions below 50g/km qualify for the full 100% allowance against taxable profits, for instance, while those above 50g/km are restricted to 80% of the rental (often referred to as the lease rental restriction).

We’ve already touched on the significant NIC savings on driver benefit in kind, but add to this the vastly reduced fuel costs and the business benefits from switching too.

Of course, there are other intangible benefits that many SME fleets can benefit from moving to electric, not least the reputational benefits, but also the wider benefits to society in terms of improved quality of air.

However, often the biggest hurdle to overcome is when your fleet has banded company cars around lease rentals. This naturally disadvantages EVs, so it’s a case of changing perspective and trusting to using whole life cost calculations. We’ve used the Gensen calculator from tax specialists and software providers BCF Wessex.

The Benefits To The Company Car Driver

In 2019, the Government announced that company cars producing zero CO2 emissions would attract a zero percent Benefit-in-Kind tax rate for the April 2020-21 tax, meaning no company car tax on a pure electric car for that tax year.

These rates then increased to 1% for the 2021/22 tax year and to 2% for 2022/23. In the March 2020 Budget, the chancellor announced that the BiK rates for all company cars for the tax years 2023/2024 and 2024/25 tax year would remain at the 2022/23 levels.

Ultra-low emission cars also benefit from reduced BIK, depending on the amount of CO2 produced below 50g/km and how many miles can be driven in zero emission mode.

For the full BIK table see our story How To Drive A Company Car And Not Pay Company Car Tax

How Does An EV Compare With an ICE On Fuel Costs?

With the average UK electricity price sitting at around 14p per kWh and if you assume an electric car will travel 3.5 miles per kWh on average, to travel 100 miles would cost around £4 or 4p per mile.

However, a petrol-engine car would cost around £14 or 14p per mile if fuel cost £1.24 per litre and we assume the average new car fuel consumption at 40 miles-per-gallon for petrol cars. For a diesel car averaging 50mpg and diesel at £1.30 a litre, the costs are slightly below 12p per mile. If you have a cheaper fixed tariff, then it’s likely the cost to fill up your electric car will be cheaper still.

An EV is not necessarily the right vehicle for everyone, but if you are looking to take on a company car it is something you should at least research. The tax benefit alone make a full EV the best cost option, especially for an employee. Hybrid vehicles also offer considerable tax benefits, but the sliding scale depending on range and emissions make them less attractive than a full EV.

We would always recommend checking with an accountant or tax professional or your finance department at your work before committing to a vehicle.

Look At The Whole Life Costs To Find The Savings

Let’s take some examples, for instance the Ford Focus 2.0 EcoBlue 190 ST Hatchback. This has a list price of £29,980 and has CO2 emissions of 139g/km. Its headline monthly rental cost is £450.

And we’ll compare it with an electric MINI Cooper S Collection Edition Hatchback. Its list price is £34,995 and monthly rental is £513.

Once you take into account all the running costs including fuel and the tax discounts the monthly lease on the MINI is £566 compared with the ‘cheaper’ Focus coming in at £665 – a saving of £99 a month. Most of this is made up of the BIK which is £158 per month for the Focus versus £8 a month for the Mini. The balance of the difference comes from a combination of NICs, fuel and maintenance.

Business Lease Savings Extend To Executive Cars

We can also compare a BMW 318d M. This has a list price of £36,415 and CO2 emissions of 129g/km. Its monthly rental with a maintenance agreement is £421.

And we’ll compare it with a £40,935 electric Tesla Model 3. Ostensibly this will cost your business more each month in rentals at £499 a month.

Once you take into account all the running costs including fuel and the tax discounts the BMW comes in at £674 a month whereas the Tesla is £621.

The Tesla driver pays BIK of £23 a month over a 36-month lease rental period compared with the BMW driver’s £360 a month.

Examples of Whole Life Costs lease plans

FORD FOCUS
2.0 EcoBlue 190 ST 5dr Hatchback

Price £29,980
Engine 2.0 L
Fuel Diesel RDE 2
Transmission Manual
CO₂ emissions 139 g/km
MPG 53.3 mpg
Power 190 bhp
Body type Hatchback

Annual business mileage 10,000
VAT recovery rate 100%
Corporation tax rate Small
Annual mileage 20,000
Annual insurance premium £600
Diesel cost per litre £1.30
Payment profile 3 + 33
Income tax band 20%

Rental £414.69
Rental £539.52
VAT recovery -£44.96
Tax relief -£79.87

Maintenance £59.08
Maintenance £87.53
VAT recovery -£14.59
Tax relief -£13.86

Business fuel £62.37
Fuel £92.40
VAT recovery -£15.40
Tax relief -£14.63

Insurance £40.50
Premium £50.00
Tax relief -£9.50

Class 1A NIC £88.43
NIC £109.18
Tax relief -£20.74

What you’re really paying       £665.07
The total cost over the lease period  £23,943.
The driver’s average monthly BiK tax £158

MINI HATCHBACK
135kW Cooper S Level 2 33kWh 3dr Auto Hatchback

Price £30,445
Fuel Electric*
Transmission Automatic
CO₂ emissions 0 g/km
MPG mpg
Power 184 bhp
Body type Hatchback

Annual business mileage 10,000
VAT recovery rate 100%
Corporation tax rate Small
Annual mileage 20,000
Annual insurance premium £600
Electric cost per mile 4p
Payment profile 3 + 33
Income tax band 20%

Rental £331.14
Rental £445.98
VAT recovery -£37.17
Tax relief -£77.67

Maintenance £40.97
Maintenance £60.70
VAT recovery -£10.12
Tax relief -£9.61

Business fuel £22.50
Fuel £33.33
VAT recovery -£5.56
Tax relief -£5.28

Insurance £40.50
Premium £50.00
Tax relief -£9.50

Class 1A NIC £4.73
NIC £5.84
Tax relief -£1.11

What you’re really paying  £439.84
The total cost over the lease period  £15,834
The driver’s average monthly BiK tax £8

BMW 3 SERIES
318d M Sport 4dr Saloon

Price £36,415
Engine 2.0 L
Fuel Diesel RDE 2
Transmission Manual

CO₂ emissions 129 g/km
MPG 57.6 mpg
Power 150 bhp
Body type Saloon

Annual business mileage 10,000
VAT recovery rate 100%
Corporation tax rate Small
Annual mileage 20,000
Annual insurance premium £600
Diesel cost per litre £1.30
Payment profile 3 + 33
Income tax band 40%

Rental £421.05
Rental £547.80
VAT recovery -£45.65
Tax relief -£81.10

Maintenance £53.59
Maintenance £79.39
VAT recovery -£13.23
Tax relief -£12.57

Business fuel £57.71
Fuel £85.50
VAT recovery -£14.25
Tax relief -£13.54

Insurance £40.50
Premium £50.00
Tax relief -£9.50
Class 1A NIC £100.63
NIC £124.24
Tax relief -£23.60

What you’re really paying £673.49
The total cost over the lease period  £24,246
The driver’s average monthly BiK tax £360

TESLA MODEL 3
Standard Plus 4dr Auto Saloon

Price £40,935
Fuel Electric*
Transmission Automatic
CO₂ emissions 0 g/km
MPG mpg
Power 245 bhp
Body type Saloon

Annual business mileage 10,000
VAT recovery rate 100%
Corporation tax rate Small
Annual mileage 20,000
Annual insurance premium £600
Electric cost per mile 4p
Payment profile 3 + 33
Income tax band 40%

Rental £499.00
Rental £672.06
VAT recovery -£56.01
Tax relief -£117.05

Maintenance £53.07
Maintenance £78.62
VAT recovery -£13.10
Tax relief -£12.45

Business fuel £22.50
Fuel £33.33
VAT recovery -£5.56
Tax relief -£5.28

Insurance £40.50
Premium £50.00
Tax relief -£9.50
Class 1A NIC £6.36
NIC £7.85
Tax relief -£1.49

What you’re really paying £621.43
The total cost over the lease period  £22,372
The driver’s average monthly BiK tax £23