Should I choose an electric vehicle as my company car or van?
Personal Tax Planning,
Corporate Tax Planning,
Tax Reliefs (including R&D)
Electric vehicles (EVs) are becoming a far more common sight on British roads. There are around 239,000 zero-emission Battery Electric Vehicles in the UK, according to recent research by the RAC, so incentives to move the country away from new internal combustion engine vehicles are clearly making some headway. But if you’re looking to buy a new company car or van, should an EV be at the top of your wish list?
Abid Khan looks at the benefits of choosing an EV and outlines the tax implications for both the company and the individual, and the available grants for EV owners.
The key benefits of choosing an EV
The UK Government has set a target for ceasing all production of internal combustion engine (ICE) vehicles by 2030. With this in mind, the Government is seeking to incentivise electric vehicles (EVs) as a way to wean the Great British Public off its petrol addiction – and in doing so make EVs the dominant form of personal transport.
What this means, in real terms, is that EVs are now a very attractive option for any business owner, director or senior executive that’s looking to upgrade to a new company vehicle.
Key benefits of opting for an EV include:
- A very low benefit in kind (BiK) rate – the BiK tax rate for EVs is currently set at 1% for the 2021/22 tax year, making it a highly tax-efficient option for individuals. What this means in real terms is that buying/leasing an EV will have a minimal impact on an individual’s tax liability, unlike the purchase of a powerful ICE car.
- Plug-in grant for qualifying vehicles – the Government is also currently offering a ‘plug-in grant’ for qualifying EVs that meet the relevant eligibility criteria. The size of the grant varies depending on the make, model and specs of the EV, but grants of up to £2,500 are available for an eligible car, different level of grants are available for small or large vans, trucks, motorcycles, and mopeds. The grant is automatically deducted from the price of the car at source by the dealer, giving you an instant discount and reducing your outlay.
- Homecharging grant – the Government also offers the Electric Vehicle Homecharge Scheme. This scheme provides a 75% contribution to the cost of one chargepoint and its installation, capped at £350 (inclusive of VAT). This helps towards the cost of installing a charging point for your EV at home, allowing you to keep the vehicle charged overnight at cheaper electricity rates.
- You can still claim your business mileage – even though you’re not using petrol, you can still claim the government-approved mileage allowance for an EV. The rate per mile will vary where the car is owned by the company or by an employee. The rates can be found here.
- A positive environmental option – choosing an EV is also a more environmentally conscious option, making your car usage more sustainable and helping the UK to meet its 2030 target of moving all personal vehicles over to electric.
Qualifying for the plug-in grant
The low BiK rate for EVs is obviously a major selling point for making your company vehicle an electric model. But the plug-in grant is also a key consideration and a financial benefit that could have a serious impact on your outlay when purchasing a brand-new EV from a dealership.
It’s important to look at the qualifying criteria for the plug-in grant to make sure that the EV you’re intending to buy will be eligible for the one-off grant payment.
Currently, the qualifying criteria are as follows:
- Cars – these vehicles have CO2 emissions of less than 50g/km and can travel at least 112km (70 miles) without any emissions at all. Example EVs could include a Volkswagen eGolf or a BMW i3.
- Motorcycles – these vehicles have no CO2 emissions and can travel at least 50km (31 miles) between charges. Motorcycles in this category could include the Artisan ES1-Pro, BMW C evolution or the Harley-Davidson LiveWire.
- Small vans – these vehicles are less than 2,500 kilograms (kg) gross vehicle weight, have CO2 emissions of less than 50g/km and can travel at least 96km (60 miles) without any emissions at all. Vans in this class include the Nissan Voltia, Renault Kangoo ZE or Renault Zoe Van.
- Large vans – These vehicles are between 2,500kg and 3,500kg gross vehicle weight, have CO2 emissions of less than 50g/km and can travel at least 96km (60 miles) without any emissions at all. Vans in this category include the Citroen e-Dispatch, Fiat e-Ducato and the Volkswagen ABT e-Transporter.
To buy or to lease your EV?
One big question is whether to buy or lease your new EV. There are pros and cons to both approaches, but ultimately your decision is likely to come down to the financial impact and how it will affect either your own personal tax or the company taxes paid by your business.
- Buying the EV – the first option is to purchase the EV outright. This is a significant outlay, so you would need to have the available cash reserves or be in a position to take out the required finance to fund the purchase. By buying the EV, you have full ownership and the EV becomes an asset of the business. As such, you may be able to claim a capital allowance against the purchase, which is a definite tax benefit to explore. If an EV is purchased on hire purchase agreement, a business would be able to claim 100% capital allowances.
- Leasing the EV – the second option is to lease the EV from a provider, giving you the full use of the vehicle until the end of the lease period. This cuts down the initial outlay, as you would usually only need to pay a deposit and then spread the monthly lease payments over the life of the lease agreement. On the downside, you don’t own the EV, it’s not an asset and you wouldn’t be able to claim any capital allowances against this expenditure. On the plus side, you can upgrade to a new vehicle at the end of the lease period by signing a new agreement.
Your choice between buying and leasing will come down to multiple factors, so it’s sensible to talk to your accountant and tax adviser before you make a final decision.
Make sure your EV strategy is tax-efficient and practical
Working with an adviser to come up with an effective EV strategy can help to remove many of the pitfalls. Understanding the tax implications and working out the cashflow impact of a purchase or lease agreement all needs to be factored into your decision making.
At Haines Watts, we work closely with our owner-managers to help them think through their company vehicle objectives and to come up with a plan that has the best possible outcomes for the owner and the company.
These are some key considerations to include in your EV strategy:
- Look at a car that is practical and meets the criteria for the plug-in grant – it’s a no-brainer to make sure you qualify for this grant. Think about the range of the vehicle too., You don’t want to be charging all the time so make sure the range of the EV can cover your average mileage.
- Make sure the EV is reasonably priced, either under finance or leasing – if you buy outright, you might get the tax benefit but will take a lot of money out of the business. If you lease, then what are the net benefits vs opting for a finance agreement?
- Find out the life of the battery – replacing an EV battery is a very costly consideration so you need to know it will last. The technology is moving very quickly, and hardware can end up being obsolete in a few years.
- Check what charging connector the car has – different brands have different plug shapes and formats, so make sure you know which charging connector your EV will need. Think about whether you can charge it locally and what the national and international infrastructure is like for this particular charging point.
- Ensure that the vehicle meets your operational needs – you need to know that your choice of EV will be able to meet the demands of your business. There’s no point getting an EV with a small range and limited storage space if you habitually travel long distances to clients with bulky equipment or large deliveries.
Haines Watts can advise and support your EV strategy
It’s essential to talk to an adviser before you buy or lease your new EV.
At Haines Watts Hornchurch we’ll help you make the right decisions and use your money wisely, so don’t end up paying any more tax on your EV than you need to.
Get in touch with us and let’s talk through your EV needs and strategy