If you are looking to go electric then this is the perfect blog to cover the essential points of switching! Choosing to electrify your fleet is a simple action that comes with multiple benefits such as reducing costs, improving air quality and protecting the environment.
With the Government working towards making all roads emission-free by 2050 and the ban on new petrol and diesel cars in 2030, this is a perfect time to future proof your business and stay ahead of the curve.
Why Go Electric?
Many business owners believe that an electric fleet is an added cost and time loss however it is quite the opposite. Eligible Electric Vehicles (EVs) are currently exempt from the London Congestion Charge which could save you up to £3,900 alone per year!
Here are some more benefits you will receive:
This is an important benefit for companies who want to reduce their overall energy consumption, the impact on the environment and to meet the future regulations that are likely to come in for climate control, carbon emissions and reporting. An Electric Vehicle shows a better reduction in emissions including production, use and recycling - it is said to be up to 3 - 5 times more efficient than a normal vehicle. One Electric car can save approximately 1.5 million grams of CO2, according to EDF Energy.
2. Cost Benefits
An EV can tend to be more expensive to purchase compared to a normal petrol/diesel vehicle however the savings you can receive by owning an Electric vehicle are far superior.
The maintenance costs of an electric vehicle are around 70% less when compared to a normal vehicle. By having an electric fleet it can lower your operating costs by up to 2-3 times plus decreasing the GHG emissions of your company.
The running costs of an EV are considerably less when compared to a petrol or diesel car running from as little as 1p per mile.
Electric vehicle owners are also exempt from the following:
- vehicle excise duty
- van benefit charge
- fuel benefit charge
- fuel duty
3. Travel Incentives
Eligible Electric Vehicles (EVs) are currently exempt from the London Congestion Charge which could save you up to £3,900 alone per year!
You’ll also be exempt from paying £12.50 a day as part of the ultra-low emission zone (ULEZ) plus there are similar ULEZ schemes planned in Birmingham, Manchester, Bristol, Bath, and Oxford!
4. Air Quality
Going electric reduces the amount of emissions being produced therefore less pollution. This has a major impact on air quality and can help with the well-being of people lives.
Does it Make Financial Sense?
For business owners, the most common question is, should I buy an electric vehicle privately or through the company?
The answer to this comes down to your specific circumstances. To work this out you will need to take into account:
- The price of the car
- The CO2 emissions (if any)
- The year it was registered
- The amount of business mileage you will be doing
- Your other personal and business tax affairs
When it comes to buying a car, there will be various taxes to consider. Let’s run through them:
To reclaim VAT on a car, it needs to be exclusively for business purposes. If there is going to be personal use then the VAT is not allowable so the business cannot claim any of it back (like if you purchased the vehicle personally)
If you purchase a Van through the business, you will be able to claim back the full VAT element even if there is some private use.
2. Corporation Tax
With an electric vehicle, you are able to claim the First Year Allowance (Capital Allowance) which means you will be able to claim the full cost of the car in the year you buy it (has to be new). Normally if you bought a car through the business only part of the cost is offset against your corporation tax. With most cars, this deduction will be applied gradually over time and the amount you can offset is based on the CO2 emissions of the car.
3. Benefit in Kind
Generous BIK tax advantages for company car drivers mean potential business savings from reduced national insurance contributions. If you buy a car through the business and intend to you it personally this will create a ‘benefit in kind’. This is an extra benefit you have received from the business and HMRC believes you should be getting taxed on it. This benefit in kind is treated as though the business has paid you additional income resulting in income tax and national insurance being charged. When there is a benefit in kind you also be required to complete a P11D form once a year.
However, a massive incentive with electric cars is that the benefit in kind is ridiculously low compared to normal where a benefit in kind charge can rise to 37% depending on the emission levels.! For electric cars, it is currently capped at 1% and rising to 2% in March 2022.
EVs mean significant Class 1A NIC savings due to their appealing BIK rates for drivers.
The van benefit charge for a zero CO2 emission van will be a percentage of the full van benefit which for 2021/22 is currently 0%.
If you bought the car personally instead of through the business you will have to your money which has already been charged to corporation tax and income tax.
With a personal car, you can claim the business mileage allowance which allows you to charge the company for business journeys at 45p per mile for the first 10,000 miles and 25p per mile for any further miles.
If you want further information on car tax, Deloitte has produced a comprehensive tax guide at www.cartaxguide.co.uk
Should You Use The Salary Sacrifice Scheme?
From an employee/director perspective, a salary sacrifice is perfect to help you move into electric vehicles.
Normally a Salary Sacrifice doesn’t have many benefits since the change in 2017 when the Government introduced the Optional Remuneration Arrangements (OpRA) which reduced the savings available however since electric (low emission) vehicles were not affected by this introduction (by having very low BIK rates), it makes salary sacrifice perfect for employees who want an electric car.
The way that a salary sacrifice scheme works are the employer leases the car including maintenance and insurance and the employee ‘sacrifices’ part of their salary BEFORE tax to pay for it.
This results in savings for the employer with reduced NIC for every employee on the scheme plus the employee receives savings on income tax and national insurance.
What Are The Benefits of a Salary Sacrifice Scheme
Under a salary sacrifice scheme both the employer and employee receive incentives financial to take part.
As an employer they will:
- Reduce salary and national insurance costs
- Improve the benefits they can offer
- Improve employee recruitment and retention
- Provide an ‘all employee’ benefit
- Reduce the company’s carbon footprint by having lower emissions
- Educate employees about climate control and how they can have an impact
As an employee they would:
- Have lower tax and national insurance liabilities as they payment is deducted from gross salary (before tax)
- Access to a new car every few years
- Don’t need to worry about servicing, maintenance, breakdown costs etc
- Access to a tax efficient second or third car
- Typically no deposit or credits checks are needed (no impact on their personal credit)
Electrifying your fleet makes sense financially and goes towards your corporation social responsibilities however something to watch out for is the current distance they can travel and the charging times.
Take look at Government Grants For Electric Vehicles And Charging Blog to see where you could be saving some extra money if you make the decision to go electric!
Frequently asked questions
This article has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
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