Are environmentally friendly electric cars good for your bottom line?
Historically, I have advised my clients to purchase their vehicle privately, or finance them privately using the variety of options available to you. The reasoning was clear, it was more tax-efficient than paying the Benefit in Kind (BIK) tax for a company car. Now that’s broad advice, and if you are a regular reader of my blog you will know that tax and remuneration planning is personal to each individual’s circumstances. With that little caveat out of the way, let us look at the changes coming up to company car BIK.
Zero BIK for electric company cars in 2020/21
New regulations from the Government state that anyone driving a full battery electric vehicle (BEV) registered after April 2020 will pay zero BIK tax on that car in the first year. This banding applies to purely electric vehicles which produce zero exhaust emissions.
This is a short-term incentive, however, and the rates are set to rise by 1% and 2% in the subsequent years. Presumably, the idea is to give companies and fleet managers a more long-term view on the savings that are available for ‘doing the right thing’.
The tax efficiency doesn’t stop at BIK
If you’re a business owner, you will be aware that you pay Corporation Tax on your profits. You can reduce this liability by writing off the full value of your electric car in the first year. Let’s put this into context, if you purchase a vehicle for £50,000 – that’s a saving of £9,500!
The Corporation Tax savings don’t stop there. The running costs of your electric vehicle, such as insurance and servicing are all deductible through your business. Plus, if you install a charging station at your office you can save Corporation Tax on the fuel too.
When you’re planning your personal remuneration, you can reduce the amount you pay yourself if you don’t need to fund a car personally. Think of the amount you currently pay for your car, both lease arrangements or similar, and running costs – reduce your remuneration accordingly, as you will have the same amount in your pocket each month and you will save on personal tax.
But aren’t electric cars just leaf blowers on wheels?
I get it. As a self-confessed petrol head, an electric car will never be my first choice. But, as a savvy business owner and accountant who is (slightly) obsessed by saving tax, I could be persuaded.
Early electric cars were ridiculously expensive – understandably with the level of research and development and the low demand in the market. Combining the cost, the low range in terms of distance, a shortage of charging stations, and the general lack of appeal, made electric a no-no for me. But that is changing. Most major manufacturers, including luxury brands, are moving into the all-electric market and the models on offers aren’t all bad.
Car Magazine report an increase of 144% in BEV pure electric car buying in 2019. So, what are buyers in the UK investing in?
The Jaguar I-Pace is seeing rave reviews – it won 2019 World Car of the Year. And with prices from £61k, it’s not a major stretch on the finances either.
The Tesla Model 3 has to be a contender. It’s more affordable than previous models but still has that Tesla wow factor – the clutter-free dashboard is just sublime. The manufacturer claims a range of 254 miles which is more than adequate for most drivers. With pricing starting at under £40k this has to be worth consideration.
These are just two of the BEV models on the market – there are many more, some at exceptional prices, so I urge you to do your research.
Before you jump on to the electric bandwagon…
Electric vehicles are not for everyone. We know that the government and electric car industry would like us to treat our vehicles just like our mobile phone – we get home and put it on charge, ready for the next day. However, real-life doesn’t work like that. I know very few people who get through a whole day on a single mobile phone charge, so we’ve adapted, we have charging points in our cars, offices and shopping centres, we even have extra power packs that fit neatly into our bags for the extra juice when it is needed.
What does that look like for vehicles?
Your car, however, is a different scenario. Statistics suggest that most company car owners drive less than 50 miles per day – so electric could be a good option and the nightly charge will suffice. However, what happens when you need to get to a client meeting that is 400 miles away? How will you factor in the time to recharge at the services?
Whilst more charging stations are appearing each day, are there enough in your area – or on your most popular routes? Also, consider the cost of your time – check out how long it actually takes to top up a car and remember, not all charging points are high speed.
What are the costs of switching?
As an accountant, I feel honour bound to look at the numbers and report on the margins that might create a bottom-line saving for a business. But I also look at the bigger picture to keep everything in perspective. So, consider these ideas too, when thinking about electric cars:
- The cost of exiting any current lease arrangement. To take advantage of the BIK savings, you will need to cancel current contracts quickly – what will that cost?
- Purchase price. Electric cars are not cheap – review the makes and models available to get a budget figure.
- Running costs. Whilst we may see them as ‘fuel free’, electricity is not free. Consider the utility costs. Also, if you provide cars to members of staff, will you need to compensate them for electricity costs at home?
- Will you need charging stations as your office?
- Insurance costs will reflect the cost of the vehicle – do not make assumptions, get some quotes before you go ahead.
Boosting your green credentials
Of course, in the environmentally aware time that we live in, there are also factors like corporate social responsibility to consider and the perception of being an environmentally friendly business.
So, when it comes to renewing your company car, I urge you to consider electric. But, don’t be drawn in on a single saving of BIK – look at the broader picture for you and your business. And, if you would like someone to look at the specifics of your particular requirements – please give me a call.