Are electric company cars best for my business
To encourage businesses to use electric vehicles, the government is introducing a new system whereby drivers of company cars pay no benefit-in-kind (BIK) tax. Additionally, rates for drivers of non-electric company cars face increases in benefit-in-kind tax rates of 1% in April 2021, and 2% in April 2022.
This is clearly a strong incentive for businesses to purchase emissions-free company cars, but there are other considerations when trying to decide whether electric company cars are best for your business.
What is company car tax?
Company car tax is based on three different elements:
- The vehicle’s value
- The rate of income tax paid by the employee
- A vehicle’s emissions and the type of fuel it uses, otherwise known as the benefit-in-kind rate
The vehicle’s value is multiplied by the employee’s income tax rate and the benefit-in-kind rate, so for higher rate taxpayers, having no benefit-in-kind rate attached to electric vehicles is very attractive from a financial point-of-view.
Plug-in hybrid cars that emit less than 50 grams/kilometre of CO2, and can travel 130 miles or more, will also be exempt from BLK, but emissions aren’t the only factor when considering a company car.
Electric and hybrid cars are typically more expensive than non-electric vehicles, but you should consider whether the difference in initial outlay can be recovered over time. The lower road tax and fuel costs of an electric vehicle mean your overall fleet costs could reduce over a few years compared with a petrol or diesel fleet.
Electric vehicle grants
The government is offering grants towards the purchase of qualifying electric vehicles. For cars, this could mean 35% off the purchase price up to a maximum of £3,500, and for vans it could provide 20% off the purchase price up to a maximum of £8,000.
Choice of vehicle
Although the production of electric vehicles is increasing, there is still a limited choice compared with ‘traditional’ vehicles. There may not be an electric vehicle on the market right now that meets your needs, but this is a growing market so it might just be a question of waiting a little longer.
Charging time and capacity
It takes around eight hours to fully charge an electric car from empty, so planning ahead for this is crucial as a business. Charging points are becoming a more familiar sight at service stations, supermarkets, and car parks, however, and you could also have them installed at your premises to make the charging process easier.
Is an electric vehicle going to be the best choice for your business?
The environmental benefit of driving electric company cars is unquestionable, and this alone might guide your decision, particularly if you’re a business with connections to environmental issues.
A brand image that’s authentic and forward-thinking would also benefit your business from a growth and financial point-of-view. There are also practical elements to consider, including the higher initial cost but lower running costs, and the practicalities of keeping a fleet charged up.
The relative newness of electric cars means that potential faults and issues that affect reliability may not yet have materialised or been experienced by owners, which could be a negative factor.
It’s always advisable to obtain expert advice on topics such as this, and your accountant will be able to help you in this respect. If you don’t have an accountant to offer guidance, Handpicked Accountants can assist.
We’ll provide reliable referrals for qualified accountants in your area based on our longstanding professional relationships and knowledge of their working practices, so please contact one of the team to find out more.