After a record 2021, electric vehicle sales are continued to rise. But is it worth switching your business to electric? To help you understand why, we have broken down the huge benefits that your business can reap the rewards of by making the all important switch.
Benefit in kind Tax
One of the main reasons for your business to make the switch to an electric fleet, is the tax incentive set out by the government. Latest tax policies for company cars show that now is the time to convert, with substantial benefits for both employer and employee.
Generally, a company car has been taxed based on two things: the list price and the CO2 emissions. These two figures create a ‘taxable benefit in kind’ (BIK), on which employers and employees pay tax and NIC. To encourage ever greener cars, HM Revenue & Customs has been increasing BIK rates on petrol and diesel vehicles and introducing lower BIK rates for fuel efficient and electric vehicles.
How does company-car tax work on electric vehicles?
There are 2 sections involved with company car tax – What the business pays and what the employee pays, the amount dependent on the car’s value, CO2 emissions, and the employees tax bracket.
The amount the company must pay is determined by the car’s ‘P11D’ value and CO2 emissions. To calculate the amount the employee must pay it gets slightly more complicated and the following formula is the easiest way to break it down: (P11D value) x (BiK band) x (tax bracket). To help you better understand, if you had a Nissan Leaf with P11D value of £29,790 and its BiK band for 2021/22 is 1%. If you are a 20% taxpayer, you would pay £59.58 in BiK tax, whereas a 40% taxpayer would have to pay £119.16 in the same period.
A little complicated we know but hopefully we helped you get your head around it.
Will the BiK rate change?
As mentioned above, the key to BiK tax is the band. This is set by the government and is currently 1% for all fully electric cars in the 2021/22 tax year, then in 2022/23 the rate will increase to 2%, so electric company cars will continue to be affordable.
Is the BiK rate different for PHEVs and hybrids?
Plug-in and hybrids vehicles also incur BiK and are calculated the same way. The cost depends on the vehicles electric range, along with their CO2 emissions. For example, if your hybrid can range between 30 – 39 miles on electric alone you will pay BiK at 10%. Vehicles with a longer range that can go even further see the rate drop to 6%.
Are vans liable for company-car tax?
If your company provides vans for private use, employees must pay a ‘van benefit charge’ instead of company-car tax. Typically, this is £3,490, but employees pay 80% of that figure on an electric van.
A massive benefit your business will reap the rewards from is that EVs significantly reduce the running/overall cost of a company car, this is due to paying no road tax and mostly to the savings made on fuel, which is usually around 80% of the fuel costs of a conventional fleet. Also, if your business is located London, having an electric fleet can save you thousands each year on Ultra Low Emission Zone and congestion charges.
How much does an electric fleet cost?
For businesses, an electric fleet is considerably cheaper to run. For example, a Tesla Model 3 in just 1 year driving (based on 20,000 miles) will save your business £768 in employer’s class National Insurance and up to £1,992 on fuel. Also, there’s savings to be had on repairs and maintenance, as a fleet of electric vehicles don’t need any oil and air filter changes, or a new fan, timing belt, head gasket or spark plug. On average, the maintenance costs for electric vehicles are 30% lower than those of their combustion engine alternatives.
What other costs are there?
If you have a fleet of EVs or would like to offer charging to customers, you may want to install charge points on your premises. Currently, the government’s Workplace Charging Scheme offers a grant of £350 off the purchase and installation of up to 40 charging points (limit £14,000). Having charging access for visitors to use is a great way to show off your business’s green credentials, and potentially leads to clients or suppliers staying longer or choosing you for the convenience.
If we haven’t yet swayed you into the Electric life, we will be more than happy to talk you through the benefits in more detail, Contact Us today.