This is the second 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.
IN a bid to wean company car drivers off petrol and diesel, the government is making them an offer they can’t refuse, with cash incentives that are impossible to ignore.
The plug and pay strategy gives drivers tax breaks worth thousands of pounds a year for zero emission motoring and, with many locations also allowing cars to be charged without cost, the offer of money for nothing and your trips for free is changing the shape of fleet choice lists.
The switch is likely to accelerate with the looming ban on the sale of new petrol and diesel vehicles from 2030 and recent experiences of long queues at petrol stations during the fuel crisis.
A recent report from the British Vehicle Rental and Leasing Association revealed fleets are funding record numbers of electric vehicles, with 47% of new vehicle orders during the first quarter of 2021 accounted for by plug-in or hybrid vehicles, with 19% for pure electric variants, three percentage points more than diesel.
Company Car Tax Benefits
A key reason behind accelerating demand for EVs is company car tax. Drivers can slash their tax bills by thousands of pounds if they opt for an electric car instead of a petrol or diesel alternative. Company car tax rates for an EV this year are 1%, then 2% for the next three years (2022-2025).
This is a fraction of an equivalent diesel. A typical low-emission model emits around 120g/km of CO2, so it would fall into the 28% tax band this tax year and 29% for the next three years.
You multiply this percentage by the price of the vehicle to calculate a ‘benefit-in-kind’ figure on which the driver pays tax. Despite EVs being more expensive to acquire, drivers pay much less tax compared with a petrol or diesel driver.
For example, the diesel driver in a £25,000 company car that is in the 28% band would pay tax on £7,000. This leaves a 20% taxpayer with a £1,400 tax bill in 2021. Over a three-year period, including tax rises, the driver would pay £4,300 in tax.
By contrast, the same driver in a £35,000 electric car would pay just £1,750 over three years, saving £2,550 or around £70 a month.
The benefits increase the higher you go up the company car choice list.
Executive drivers who are taxed at 40% can cut their company car tax bill by around £5,000 a year by switching from a premium diesel saloon to an electric alternative, such as a Tesla Model 3.
The CEO of an SME business switching from his trusty Range Rover to a Tesla Model S could cut their tax bill from nearly £40,000 over three years to under £2,000.
For most petrol and diesel company drivers, the benefit of free fuel for private mileage is a forgotten perk that has been taxed out of existence, but not if you have an EV.
The Car Fuel Benefit charge is incurred by company car drivers if an employer pays for the petrol or diesel they use on private journeys. It is taxed at the same percentage rate as their company car using a set value that changes each year. Currently, it is a whopping £24,600 multiplied by the taxable percentage of your company car.
So, the diesel driver mentioned above who incurred a £1,400 tax bill on their car in 2021 would pay an additional £1,377 to receive ‘free fuel’, effectively doubling their tax bill.
This doesn’t apply to electric cars. Electricity is not currently classified as a fuel by the taxman, so there is no benefit charge to pay if your employer picks up your charging costs.
If drivers have to pay to plug-in, there is general agreement that electric cars cost less to run.
While a fossil fuelled vehicle would be efficient if it achieved 50-60mpg in real-world conditions, electric vehicles are returning the equivalent of more than 100mpg in everyday use.
The reason is simple. In a petrol or diesel car, around 80% of the fuel’s energy is wasted as heat and friction, setting it on fire, pumping oil and coolant, and moving cylinders up and down, then transferring that energy through gearboxes and transmissions to the wheels.
In contrast, an electric vehicle is up to 90% efficient, if you include the benefits of regenerative braking, where energy normally wasted slowing down is used to recharge the battery.
It can also be cheaper to fill up an EV, although it needs a bit of homework.
A good rule of thumb is that an EV travels three to four miles per kWh, so if you know what a kWh of electricity costs, then you can calculate cost per mile and compare this to a petrol or diesel vehicle, which on average costs 10-12p per mile.
Unlike fossil fuels, you can charge at home, at work, at the pub, pretty much anywhere with a charging point fitted, in addition to a traditional forecourt, but costs can vary significantly.
Your standard tariff at home is around 20p per kWh, which is the cheapest way to recharge, but very slow, although you should look out for some of the specialist rates designed for EV drivers which can be as low as 5p per kWh at set times. A public fast charger takes less time, but costs more money, a lot more in some cases.
Prices can range from 25p per kWh to 79p per kWh for the fastest chargers (or 7 pence per mile to 22 pence per mile at 3.5 miles per kWh).
You can subscribe to a specific supplier to cut the cost but beware of just turning up at a public charger and swiping your credit card – you could be paying double for the range you will get compared to a petrol or diesel alternative.
Just like any car, if you drive carefully then ‘fuel’ economy (and running costs) will improve. A growing number of drivers report economy runs of 5-6 miles/kWh.
Alternatively, free charging from councils and venues is plentiful if you know where to look. Out of more than 25,000 charging devices reviewed by Zap-Map, a website which shows where EV chargers are located, 20% are free and most of them are conveniently placed in supermarkets, car parks and at destinations including health centres, hotels, and leisure venues.
This means that in addition to lower taxes, drivers could slash their fuel costs too, making the incentive to switch away from fossil fuels even greater.
With lower company car tax bills and fuel cost savings reducing spending by hundreds or even thousands of pounds a year, if you don’t have money to burn then EVs make financial sense for company car drivers.
Discover The Electric Advantage
The business case for electric cars has never been stronger. Total ownership costs are already competitive with petrol or diesel in most European markets, according to the 2021 LeasePlan Car Cost Index, and the benefits are growing. With reduced fuel and maintenance bills and renewed tax incentives, a Volkswagen ID.3 (pictured above) could save British businesses almost 25% compared to an equivalent Golf.
LeasePlan has a suite of funding solutions to make that transition easier, and we’ve teamed up with Fully Charged to explore the benefits of an electric fleet. To discover how plug-ins could reduce your operating costs, watch the video below.