What you need to know about investing in electric cars for your business

What you need to know about investing in electric cars for your business

The number of electric cars on the roads is increasing rapidly.

In 2023 alone, the number of new electric vehicles grew by 18 per cent, with around 1.1 million fully electric cars now on UK roads.

Nearly 60 per cent of plug-in vehicles are registered to businesses, with many more acquired through salary sacrifice schemes, according to the Society of Motor Manufacturers and Traders (SMMT).

This trend is driven by several benefits, from cost savings to enhanced sustainability.

Most importantly, to promote the transition to electric vehicles, the Government has introduced various car tax incentives.

For example, electric vehicles have a lower Benefit in Kind (BIK) tax compared to petrol or diesel vehicles.

The BIK rate for electric vehicles is only two per cent until 2025 and will increase to five per cent by 2028.

This rate applies to employees who use the company car for personal purposes in addition to business use.

BIK rates, set by the Government, depend on a car's CO2 emissions, fuel type, and emissions standards.

The BIK rate ensures that the tax employees pay reflects the environmental impact and the financial value of the company car benefit.

On top of this, electric vehicles owners also benefit from:

·        Lack of congestion charges: Electric vehicles are exempt from congestion charges in Clean-Air Zones (CAZ), which are present in cities like London, Oxford, and Birmingham, with more zones planned across the UK. However, the congestion charge exemption in London will end in 2025, as will the road tax exemption.

·        First Year Allowance (FYA): Since April 2021, brand-new zero-emission electric cars have been eligible for a First Year Allowance (FYA), allowing businesses to offset 100 per cent of the car’s cost against their yearly taxable profits. This benefit must be claimed in the year the electric vehicle is purchased. Additionally, costs for installing an electric vehicle charging point can also be included.

·        VAT relief: Although electric cars are not exempt from VAT, if the car is for business use only, you can reclaim 50 per cent of the VAT.

So, rather than being an environmental choice, it can also be a tax saving and financially beneficial option for your business.

Buying or leasing electric vehicles

Some businesses prefer to buy vehicles outright, appreciating the sense of ownership.

However, leasing offers a hassle-free way to drive a new car for a few years before returning it and choosing another.

If you enjoy switching cars every two to four years, leasing is usually the more cost-effective option.

Leasing allows the full leasing costs of the electric vehicle to be deducted from the business's profits.

The typical 15 per cent restriction on car leasing costs applies only if the vehicle's emissions exceed 50g/km.

If your business cannot afford to purchase an electric car outright, leasing may be a more viable option, spreading the cost over the lease period.

Long-term savings

While the initial cost of an electric car can be higher than a standard petrol or diesel vehicle, long-term savings can offset this expense.

Generally, electricity is cheaper than fuel, reducing costs for long-distance travel for business meetings.

Additionally, electric cars have fewer moving parts, meaning fewer potential issues and lower maintenance costs.

Charging infrastructure considerations

As people become more aware of climate change and make lifestyle changes, they also expect businesses to follow suit.

The Government's Workplace Charging Scheme (WCS) is a grant that helps businesses reduce the costs of installing electric vehicle charging points.

The WCS can reduce the cost of a charge point socket by up to 75 per cent, capped at £350 per socket, and allows for a maximum of 40 sockets per applicant business.

There are various grants available for the installation of electric vehicle charge points and infrastructure.

Consulting an expert can help you determine which grants you may be eligible for.

Impact on ESG

Adopting electric cars demonstrates your company's commitment to social responsibility, resonating positively with customers, employees, and stakeholders who value sustainability.

By reducing operational costs through lower fuel and maintenance expenses, electric cars enhance financial performance and ensure long-term competitiveness.

Integrating electric vehicles into your business improves your Environment, Social, and Governance (ESG) metrics and positions your company as a forward-thinking, environmentally conscious organisation.

Our expert team is here to help you understand the pros and cons of introducing electric cars into your business.

We’ll guide you through the complexities of available tax reliefs and grants to boost your business financials.

Get in touch with our team to find out how electric cars could benefit your business.