Are you considering buying a car? Will you be using that car for work? If you’ve answered yes to both of those questions, maybe you should consider buying the car through your business. There can be a lot of tax benefits to be had, especially if you’re considering getting an electric car. Before electric and hybrid vehicles, the buyers had the option of buying either a diesel or petrol car, which from a business tax perspective did not make much sense.
Current legislation in the UK states that after 2030 the sale of new combustion engine vehicles will be banned, so at the time of writing there are just eight and a half years left to plan your move.
However, the sooner fleet managers move to electric, the better the benefit for the business. Currently, the purchase of an electric car carries 100% first year allowance (as does any vehicle with less than 50g/km of CO2 emissions). Under the current Corporation Tax rate, an electric car costing £50,000 will reduce the tax cost of the company by £9,500 in the year of purchase.
Furthermore, this is also deductible in the same way for the self-employed or partners of a LLP, only this time relieving personal income tax and Class 4 NIC contributions, payable by basic-rate taxpayers at 29%, saving the taxpayer £14,500 in the year of purchase. Those taxed under the self-employed system are also not subject to company car tax (P11D tax charges) which leads to further savings for those who choose to operate as self-employed or as a partner in a partnership.
That is all well and good if the funds are there to be spent on fleet. Most companies run on contract hire and whilst the tax savings are still there to be had, they are made on the rental payments made monthly for the contract hire. So the saving here isn’t the immediate benefit you’ll get on outright purchase, but if funds are not available to purchase outright, the same tax benefits are felt each year over the life of the contract.
Can the current infrastructure support electric cars?
Frankly, no, not right now. At the end of December 2020, there were 38.6 million registered vehicles in the UK with just 1.6m new registrations in 2020 https://www.racfoundation.org/motoring-faqs/mobility#a1. But the current make up of new registrations being the electric car is 11% of new vehicle sales. This will increase over time. Infrastructure for public charging will need to increase proportionately. If every new vehicle sold right now was an electric car, then the infrastructure would vanish under the demand.
All is well and good if an electric car driver has off road parking or can easily charge the battery from home. If not, then the driver is reliant on the public charging network. Quite like a petrol station, electric cars largely have three different connectors, so if a tethered location is used such as Genie Point, then you have the three options. If not, then untethered connections are widely available, and electric cars usually comes with the charger cable required.
What about the cost of running an electric car
The running costs are dramatically low compared to ICE. At the time of writing, the average fuel cost for unleaded petrol is 128.4 p/litre. https://www.theaa.com/driving-advice/driving-costs/fuel-prices . The cost per mile is around 15p https://www.nimblefins.co.uk/average-cost-petrol-car
For the cost of electric, it all depends on how much is being paid per kWh of energy to charge the battery. From my own experience, 2,000 miles has cost me just over £100 so coming in close to 5 pence per mile.
Public charging is where it gets complicated. There are free vends, in some supermarket car parks and some council owned public car parks. The next most efficient cost is charging from home, since the driver should know the kWh price they are paying. With an electric car and the energy sector, some tariffs can offer overnight prices as low as 5p per kWh, which drive down the charging costs if the driver times it right. In an ideal world, we would all have solar panels installed and charge electric cars from the power of the sun for free.
The public charging network ranges from free to £1.65 per kWh (a Garden Centre car park on the Isle of Wight). But typically, the range is between 26p (BP Pulse) and 35p (Genie Point) per kWh. The frustrating thing about public charging however is each provider has an app or RFID card to use the charger. Thankfully things are changing and the providers are slowly making contactless payment an option.
Tesla are the leaders in the public charging market. Once your online account is set up and vehicle registered to it, the driver simply rocks up at a supercharger, selects the charging cable, presses a button on the handle to open the charge port and simply plugs in. No app to connect it all up and no need for contactless payment, it just charges the car.
And currently the congestion charge in London is free for electric cars until December 2025.
What about charging rate?
The other factor here is how quickly an electric car will charge. It’s not as simple as the five minutes spent at the petrol station. There are two factors deciding how quickly your battery will charge, the maximum amount of power the electric car will accept, and the maximum amount of power delivered by the charging unit.
From personal experience, to charge a Tesla Model 3 standard range (50 kWh battery) from empty to 100% full on a UK 3 pin plug would take around 22 hours at a charge rate of 2.3 kW. However, the electric car never turns up on the driveway on 0% and rarely is charged to 100%, so an overnight charge of say 10 hours will deliver around 40% of battery life and roughly 100 miles range.
Most public charges which are on free vend charge up to 7kW, three times faster than the 3 pin “granny charger” plug. Most of the paid for chargers will charge up to 50 kW DC charge, thus reducing the time needed to charge on the go.
The most efficient for on the go charging are the supercharger locations, delivering up to 350 kW of power, providing the electric car will take that. From my own experience, I have managed to get close to 125 kW charge rate. Again, it all depends on the battery status at the time of charging, the lower the percentage the faster it will start to charge. As the battery becomes more charged, the rate of delivery drops to ensure there is no damage to the battery.
There are no major moving parts in an electric car, just an electric motor and battery that need no service at all. There is no engine oil to change or spark plugs. The Tesla service schedule is 2 years or 24,000 miles, and all that is checked is the validity of the brake fluid. Electric cars use regenerative braking so the physical motion of ‘putting your foot on the brake’ rarely happens. As such, the brake pads take a long time to wear out.
All in all, there is no better time than now to move to all electric and take those tax advantages and lower running costs.
What is unknown is how the Treasury is going to replace its income from fuel duty, for example with a new tax on electricity supply, especially to the home network.
What about fuel duty?
At the moment, there is no fuel duty tax on electricity like there is for petrol and diesel, which is currently around 58p per litre before tax is applied. It is included in the price per unit paid for petrol, diesel and other fuels used in vehicles. On top of that, you also have to pay VAT. In 2019-20 fuel duty raised £28 billion for the government and was equivalent to £1000 per household.
That’s a substantial amount of money that the government is missing out on and no doubt will be keen to find a way to plug this hole in revenue, especially as more people are switching to electric vehicles.
It is widely thought that, as EV ownership increases and ultimately fuel duty reduces, then a pence per mile system will be introduced. If this is mandated across the board, then drivers of combustion engine vehicles will pay duty twice. That could be seen as either unfair or an incentive to convert to electric vehicles. Unless there is either a way to differentiate between the 2 vehicle types or remove the fuel duty completely.
If a pence per mile duty be implemented, then it could also include and replace the road fund licence, which taxes vehicles based on their emissions. With more and more drivers converting from gas guzzlers to zero emission electric vehicles, then the government will lose out on this tax too if nothing is done.
However, it won’t be easy to pass this legislation. In 2007 a ppm charge was proposed which faced strong opposition and subsequently did not go through. But a lot has changed on the road in the 14 years since then and feelings may have changed in politics.
What is quite clear, it is now to find the sweet spot in EV ownership. All the tax breaks offered now will surely have to be withdrawn at some point, so best to act now or miss out on these incentives.
Over to you
Are you planning to get an electric car through your business? Do you work for a Limited Liability Partnership (LLP) or run an LLP and want to discuss how to best get a car through you business to maximise the tax benefits? Get in touch with us by clicking the big ‘Get In Touch’ button in the top of the page on the right or click here.