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Are you keen to explore the possibilities electric vehicles could offer your business, but put off by the potential cost of vehicles and their infrastructure?

It’s a common concern among business buyers, particularly if you have a fleet with a few years’ life left in it. The post-COVID economic landscape remains uncertain for many industries, which makes businesses – especially small businesses, where margins are typically tighter – reluctant to invest.

The thing is though, if you can weather the upfront investment, there are so many financial incentives for business buyers that your investment in electric vehicles can more than pay for itself over the lifetime of the vehicle.

As well as being cheaper to run and maintain generally, the UK Government provides a host of tax credits and incentives for businesses to invest in electric vehicles. So the vehicles themselves cost less, whilst saving you money on your tax bill.

In other words, if you do your research and know what you’re entitled to you could be onto a winner. You’ll also be able to tap into an increasingly lucrative green consumer market for potential gains there too.

Below, we’ll take you through:

  • The competitive advantage ‘going green’ could offer
  • Grants for electric vehicles and chargers
  • Tax benefits for electric vehicles
  • Tax benefits on electric fuel and charging

 

Electric Fleets Are More Attractive

Obviously, it’s great to be eco-friendly as a goal in itself – but businesses that make efforts to reduce emissions also appeal to an increasingly eco-aware consumer base.

In a recent survey of digital consumers across the UK and the US, 50% of respondents indicated that environmental concerns impact their purchasing decisions. Over half also stated that they were willing to pay more for eco-friendly goods and services.

This is a concern that is growing. In 2019, the percentage of people that considered protecting the environment ‘important’ or ‘very important’ was eight percentage points higher (61%) than in 2009 (53%). That rate is expected to increase.

So, if you can demonstrate a real, sustained effort to reduce emissions, you’ll be helping both the environment and your bottom line. And what more obvious place to start than the vehicles you use every day to carry out key business tasks?

They’re likely to be a major contributor to your business’s carbon footprint, particularly if you own a fleet of vehicles for haulage or deliveries.

Increased revenue via green-focused consumers plus cost savings thanks to tax benefits is a powerful draw. Here’s where the Government offers savings.

 

Low Emission Vehicles Are Eligible For a Plugin Grant

To meet its targets of cutting emissions by 78% by 2035 (compared to 1990 levels), the UK Government offers discounts on the price of new electric vehicles via a grant given to manufacturers and vehicle dealerships.

You don’t need to do anything to claim this – dealerships include the value of the grant in the advertised price of the vehicle. Money off, with absolutely no tax paperwork required? Count us in.

That said, not all low-emissions electric vehicles are eligible for the grant – only those that have been accepted onto the scheme by the Government.

How much this grant comes to depends on:

  • What type of vehicle you’re buying
  • How many you want to buy (crucial information for fleet buyers!)

This handy table should help you with the basics of what happens for each vehicle class. For a complete list of eligible vehicles across all categories, check out the official government website. Some of these categories offer plenty of choice, whereas for others you’ll only have the option of one or two models.

Vehicle class Emissions criteria Grant value Other info
Cars Less than 50g/km and can travel at least 112km (70 miles) with no emissions at all 35% of purchase price, capped at £2,500. Price cap of £35,000 (including VAT and delivery fees)
Motorcycles No CO2 emissions and can travel at least 50km (31 miles) between charges 20% of purchase price, capped at £1,500 n/a
Mopeds No CO2 emissions and can travel at least 30km (19 miles) between charges 20% of purchase price, capped at £1,500 n/a
Small vans Less than 2,500kg gross vehicle weight, with CO2 emissions of less than 50g/k. Can travel at least 96km (60 miles) with no emissions 35% of purchase price, capped at £3,000 Only four models eligible for the scheme
Large vans Between 2,500- 3,500kg gross vehicle weight, with CO2 emissions of less than 50g/km. Can travel at least 96km (60 miles) with no emissions 35% of purchase price, capped at £6,000 n/a
Taxis CO2 emissions of less than 50g/km and can travel at least 112km (70 miles) with no emissions 20% of purchase price, capped at £7,500 Only two models eligible for the scheme
Trucks 3,500kg- 12,000kg gross vehicle weight, with CO2 emissions of at least 50% less than the equivalent conventional Euro VI vehicle that can carry the same capacity. Can travel at least 96km (60 miles) with no emissions 20% of purchase price, capped at £16,000 Only for the first 250 orders placed. Grants at the £16,000 rate are limited to 10 per customer. After the 250 order limit is reached, a maximum grant rate of £6,000 will apply. Only three models eligible.

 

What About Electric Vehicle Charging?

If your employees need to charge their electric vehicles at home – if you’re using electric taxis, or mopeds for deliveries, for example – it’s probably reasonable that they expect you to pay for installation of chargers.

The UK Government’s Electric Vehicle Homecharge Scheme (EVHS) provides funding of up to 75% towards installing electric vehicle charging points at domestic properties, so long as:

  • You install smart chargepoints from the Government’s approved model list
  • Your vehicle is eligible for the scheme
  • You use an authorised installer for the chargepoints.

If you’re a fleet operator or maintain a pool of company cars, you’ll need to install chargers at your place of work, or wherever you house your vehicles when they aren’t being used.

The Workplace Charging Scheme (WCS) provides vouchers to put towards the upfront cost of buying and installing electric vehicle chargers in this case. Whilst you’re not necessarily restricted by models here, you will still need to use a government-approved installer and model of charger.

 

Tax Benefits To Using Electric Vehicles For My Business

Grant money is only the tip of the iceberg when it comes to financial incentives for electric vehicles. There is also a range of tax benefits, deductions and savings your business can take advantage of.

These include:

Road Tax Exemptions

Road tax is based on CO2 emissions. This means that if your company’s vehicles are low or no-emission, there are significant savings to be had.

Fully electric cars are exempt from road tax because they have no tailpipe emissions. Some plug-in hybrid cars with emissions less than 100 g/km may need to pay anything from £0-£135 per year.

Something to watch: all cars (electric or not) registered on or after 1st April 2017 that cost over £40,000 are liable for an extra road tax charge. Electric cars in this price and age bracket will need to pay £325 for five years, compared to £475 for petrol and diesel equivalents.

Congestion Charge Exemption

This may seem like a small one, but costs here add up! The London Congestion Charge currently stands at £11.50 per day – if you have a fleet of vehicles operating in that area, that’s a fair amount of money.

Electric vehicles are exempt from the Congestion Charge – and with similar initiatives kicking off elsewhere, this might be something to bear in mind for the near future.

Low Benefit in Kind Rates

Benefit in Kind is a tax levied on the non salary-based employee remuneration packages. For example, if one of your employee perks is personal use of a company vehicle outside of business hours, employees will be liable for tax on it.

Higher Benefit in Kind rates for petrol vehicles has led to reduced take up of company cars among employees, who often feel that using their own vehicle and claiming back mileage is a more cost-effective way to go.

Company vehicles don’t just benefit employees, however. Businesses who offer company cars or other vehicles can also benefit from:

  • Tax-deductible repair and maintenance expenses
  • Capital allowance relief
  • Reclaiming VAT
  • Branding and advertising gains

If your employees aren’t taking up your offer of a company car, you can’t access these benefits. This means you could be paying over the odds for employee travel thanks to mileage payments.

Electric vehicles could provide a way back in for company cars, thanks to a much lower Benefit in Kind tax rate than petrol vehicles. Purely electric cars with no emissions are taxed at 2%, whereas for petrol vehicles Benefit in Kind could be as high as 37%.

Benefit in Kind rates now operate on a sliding scale, depending on:

  • The fuel source of the vehicle
  • The emissions the vehicle produces
  • How far the vehicle can travel on a single charge

You can find a full table of Benefit in Kind rates from 2021-2024 here.

Let’s put these numbers in context.

Currently, the Benefit in Kind rate for electric vehicles with zero emissions is 2%. This means that for Volkswagen’s e-Golf, Benefit in Kind payments would come to £55.20. For a Golf GTI 1.5L petrol, you’d be looking at £1,392 (based on EDF Energy’s calculations).

Capital Allowances on Electric Vehicles

When you buy assets for use in your business, you can claim capital allowances on some or all of the value of the item. This means that you can deduct their cost from pre-tax profits, resulting in significant savings when the tax bill comes around.

The amount you can claim for company vehicles on capital allowance varies depending on a number of factors – but cars with CO2 emissions of less than 50g/km are eligible for 100% first year.

This means you can deduct the full cost of electric vehicles from your pre-tax profits, so there’s potential for major tax savings here. EDF Energy crunched the numbers and found that you’d save a tempting £7,600 in tax for a vehicle costing £40,000.

 

Super deduction tax relief for fleet investment

Fleet operators buying trucks and vans are now eligible for a massive 130% ‘super deduction’ when buying new trucks and vans – and this includes electric models.

From April 1, 2021, to March 31, 2023, will be able to claim a 130% super-deduction capital allowance, or a 50% first-year allowance (FYA) for qualifying special rate assets. This could result in a tax saving of 25p in every £1 spent.

It’s not clear whether infrastructure for electric vehicle charging at this point – but definitely something to keep tabs on if you’re thinking of investing.

 

Are There Financial Incentives For Electric Vehicle Charging?

Whilst business users need to pay a 20% tax on electricity for charging vehicles (the same as they would do for petrol or diesel), electric vehicle users are exempt from fuel duty. This means an electric fleet could save a significant amount on fuel in the long term.

As an added bonus: if you provide company car users with access to chargers at your workplace, that electricity is exempt from being taxed as a benefit in kind.

 

The Financial Benefits of Electric Vehicles Summed Up

Here’s your handy, at-a-glance list of all the financial benefits you need to consider when buying electric vehicles:

  • Reputational benefits among consumers (and a potential increase in revenue!)
  • Upfront grant from UK Government when you purchase your vehicle
  • Upfront grant for installing grants, both domestically and at your workplace
  • Exemption from (or reduced rate of) road tax
  • Exemption from Congestion Charge
  • Generous capital allowances
  • Very low Benefit in Kind rates – and none on employer-provided electricity for charging
  • Reduced tax on charging (in comparison to petrol/diesel)

Obviously, you’ll need to weigh these up against the costs of an electric vehicle. In many cases, you’ll find that going green more than balances the books.

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