This is the third of our series of four articles helping business drivers and SME fleets choose electric. You can read the first article here: Time For A Vehicle Detox – Five Steps To Going Electric For SMEs. And the second here: Money For Nothing – The Financial Incentives For Company Car Drivers To Switch To Electric Vehicles.
SME FLEETS are in the frontline in the battle against climate change. They don’t wave placards or glue themselves to motorways, but instead help mitigate environmental damage through real-world initiatives that help cut pollution and provide a more sustainable future.
According to research by the Federation of Small Businesses, the vast majority already have plans in place to reduce energy use and become more efficient. Together they will cut carbon emissions by millions of tonnes in the next decade.
However, SME owners are savvy business people, so while they share a common concern about climate change, they also want to be sure they do what is right for their businesses.
A study of 1,200 SMEs found they need help with strategy, planning and, most of all, finances to help them accelerate the green revolution, particularly when it comes to electric vehicles.
Around half say the perceived extra expense of electric vehicles is a barrier to change, while one-third say the lack of charging points is a concern. SMEs who source used vehicles for their fleet say there is also a lack of a second-hand EV market.
While grants and low-cost loans will be valued, is it possible for SMEs to save the planet and save money today by introducing electric vehicles?
The answer depends on digging deeper into vehicle costs, because headline rates hide the actual expense of operating different cars.
Understanding Whole Life Costs To Provide Total Cost Of Ownership
Whole life costs, also known as Total Cost of Ownership, consider much more than front-end pricing, as they include taxes, fuel, servicing, and tolls, to uncover hidden spending on vehicles to inform decision-making.
Take Class 1A National Insurance Charges, for example. Drivers already enjoy massive tax savings from switching to electric vehicles (see our previous article on this), but so do employers.
Employers pay Class 1A NIC on expenses and benefits they give to their employees at a rate of 13.8% for the 2021/22 tax year.
The tax is based on the value of the benefit-in-kind to the driver. For example, a driver in a £36,000 diesel in the 29% tax band would pay tax on a benefit-in-kind of £10,560. The employer would also pay tax on this amount at 13.8%, equivalent to a tax bill of £1,457.
By contrast, a driver in a £48,000 Tesla Model 3 in the 1% tax band for 2021-22 would have a benefit-in-kind of £484, incurring the company a paltry £66 Class 1 A NIC bill, a saving of around £1,400 annually.
The government is already committed to maintaining this electric vehicle tax advantage until at least 2026.
So a fleet of 10 vehicles could lock-in Class 1A NIC savings of more than £50,000 if it switched this year, especially with NIC rising by 1.25% next tax year
There are also significant savings on fuel, which is clearly shown when looking at Advisory Fuel Rates, the government’s standardised way of reimbursing employees for business travel in their company cars.
So, for a petrol car with an engine of 1.4-2.0-litres, the AFR is 15 pence per mile. For a diesel with an engine of 1.6-2.0-litres it is 13 pence per mile. An electric vehicle is five pence per mile.
Over 20,000 business miles, the company would pay the petrol driver £3,000, the diesel driver £2,600 and the EV driver £1000, a saving of at least £1,600. Over multiple years or for high mileage drivers, the savings can’t be ignored. And even if the business mileage covered by your SME fleet drivers is less than this, the savings remain. (AFR and AER rates correct as at December 2021.)
Another key area of cost reduction is Vehicle Excise Duty. For example, the first-year charge for a petrol car emitting 151-170g/km of CO2 is £555 and £155 in subsequent years, plus a further £335 annually for five years if it costs over £40,000. Electric vehicles are exempt, saving hundreds of pounds over a vehicle’s fleet life.
Pay Less For Vehicle Maintenance
Then there is maintenance, which is proving to be a major bonus for EV fleets. Firstly, there are fewer moving parts to wear out and secondly the remaining items, such as brake pads, tend to last much longer.
In one recent example, a maintenance engineer highlighted a BMW i3 with an original brake pad that was only 50% worn after 107,000 miles; it is likely to last to 180,000 miles because electric cars generate electricity when slowing to recharge their batteries (regenerative braking), instead of wasting valuable energy through the brakes.
Companies can also enhance savings by changing the way they provide cars to their employees, for example through a Salary Sacrifice scheme, of the type for example operated by LeasePlan, where employees exchange part of their gross annual salary for a car. This reduces the amount of National Insurance the company pays on salaries, in addition to the tax savings on vehicle provision obtained by switching to an electric car.
A great way to lock in savings is to remove variable costs, so rather than tying up company funds in purchasing, it pays to opt for leasing as the most efficient method of generating value from company car changes.
This guarantees your expenditure and, while the monthly leasing rate for an EV might currently be slightly higher than an equivalent petrol or diesel, the whole life cost savings could be significant.
In these ways, SMEs can put the planet and their business first.
And there isn’t a placard or a tube of Super Glue in sight.L
How The Lease Rental Versus Total Costs Demonstrate Company And Driver Savings
We’ve taken three cars here: A BMW diesel saloon; an Audi petrol saloon; and a Tesla electric saloon. While the monthly rental rates of the BMW and Audi look highly enticing in comparison with the Tesla, once you apply Whole Life Costings both cars work out significantly more expensive than the electric Tesla – by as much as £58. So there are significant savings to be enjoyed for the SME business.
But the savings do not stop there. The Tesla driver pays as much as £383 per month less in company car tax.
BMW 3 SERIES
- 318d M Sport 4dr Saloon
- £36,415
- Monthly rental £393
- Monthly Total Cost £570
- The driver’s average monthly BiK tax would be £360.
AUDI A4
TESLA MODEL 3
- Standard Plus 4dr Auto Saloon
- £40,935
- Monthly rental £473
- Monthly Total Cost £512
- The driver’s average monthly BiK tax would be £23.
Source: Gensen calculator from BCF Wessex. The profiles are based on 10,000 miles a year over a 36 month lease rental with 5000 miles each year on business. Maintenance, insurance and taxes are all included in the calculations.
Big Benefits for Small Business
Climate change is at the top of the agenda, and electric vehicles can help SMEs reduce their carbon footprint, improve their image and save money too. With renewed financial incentives, low running costs and an expanding choice of versatile, long-range models, there’s never been a better time to make the switch.
LeasePlan offers a suite of flexible funding solutions to support your electrification plans, and we’re working with Fully Charged to help businesses understand the benefits. To find out more about what electric vehicles could offer your fleet, click here.
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