THERE was heartening news in the Chancellor’s Autumn Statement (17 November 2022) for SME fleets.
Rates of company car tax benefit in kind tax are rising modestly for electric cars.
From April 2025, benefit in kind rates for electric cars will increase by 1% annually to a maximum of 5%.
The average electric vehicle driver on a £35,000 list price at the 20% tax rate will only be paying an extra £6 a month from April 2025.
The same increases are also in place for ultra-low emission cars emitting less than 75g per kilometre – in other words, most plug-in hybrid cars.
So a Range Rover plug-in hybrid will be taxed at just 13% in five year – offering up many more years of Range Rover driving for SME CEOs.
Rates for all other bands will increase by 1% (up to a maximum of 37%) in 2025/26, and will then be frozen for the next two years.
The rates for electric car company car tax will also ensure that salary sacrifice remains a popular choice.
Given the industry’s current focus on salary sacrifice, the modest annual increase to BiK tax will be widely welcomed, tax savings available will be largely preserved and there’s little likelihood its popularity will wane. And the certainty offered from the confirmation of BiK tax rates until 2028 should drive even greater interest by employees and employers.
VED Introduced For Electric Cars
Of course it wasn’t all glad-handing. The Chancellor took the opportunity to introduce Vehicle Excise Duty (VED) for electric cars.
From April 2025 electric cars and vans will be subject to VED in the same way as petrol and diesel vehicles. But the expensive car supplement for cars over £40,000 will only apply to electric cars registered from 01 April 2025, with zero emission cars registered before April 2025 continuing to be exempt.
This was the downside to the Autumn statement, said Paul Hollick, chair of the Association of Fleet Professionals.
The biggest disappointment comes from the decision to, in most cases, equalise vehicle excise duty with petrol and diesel cars and vans from 2025. This is still some time away and probably the strategic thinking is that there will be market equity between EV and ICE by that point, but if we have learnt anything from the last few years, it is that predicting the shape of the new vehicle market is very difficult and this could yet prove to be a move that ultimately slows EV adoption by both new and used buyers.
Of course, bearing in mind the £40,000 expensive car supplement in VED, this could be part of a government strategy to try to make EVs more accessible, with manufacturers being effectively encouraged to keep prices below this level, especially in the light of recent price escalation following the pandemic.
While the addition of VED will add to the whole life costs of electric cars, in Jeff Whitcombe’s opinion, electric cars would remain better on the cost cycle:
Although the withdrawal of the plug-in car grant has pushed up the cost of acquiring an electric car, the application of Vehicle Excise Duty from April 2025 will further increase their whole life costs, but the comparison between electric cars and internal combustion engine cars should not be materially changed.
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