Thinking of investing in electric cars for your business? – Here’s what you need to know

The number of electric cars on our roads is rising rapidly. In 2023 alone, the number of new electric vehicles rose by 18 per cent and there are now some, 1.1 million fully electric cars on UK roads, according to official figures from April 2024.

Almost 60 per cent of plug-in vehicles are registered to businesses and many more are brought via salary sacrifice schemes by employees, according to the Society of Motor Manufacturers and Traders (SMMT).

Why is this? Well, there are several benefits to investing in electric cars including cost savings to enhanced sustainability, but to really reap the benefits you’ll need to understand the financial, tax and operational considerations to be sure it’s the right choice for your business.

If your business is considering electric cars, there are a few things you’ll need to know before you take the plunge. So, let’s take a look!

What are the tax incentives?

To encourage the switch to electric vehicles, the Government has implemented some car tax incentives.

One of the key tax benefits of electric cars is a far lower benefit-in-kind (BIK) charge when compared to petrol or diesel vehicles.

The BIK rate for electric vehicles is only two per cent until 2025 and will reach five per cent by 2028.

It only affects employees who use the company car for their personal purposes in addition to business use.

BIK rates are set by the UK Government and are determined by how much CO2 a car emits, which fuel it’s powered by and the emissions standard it meets.

The BIK rate ensures that the tax employees pay reflects both the environmental impact and the financial value of the company car benefit they receive.

Congestion charges, the payments enforced for cars in Clean-Air Zones (CAZ), do not apply to electric vehicles. London, Oxford and Birmingham all have a CAZ with plans to introduce more across the UK; it could be time to make the switch.

The congestion charge exemption in London is due to end in 2025, as is the road tax exemption.

Since April 2021, brand-new zero-emission electric cars have been eligible for a First Year Allowance (FYA), allowing businesses to offset 100 per cent of the car’s cost against their yearly taxable profits.

This FYA benefit must be claimed in the year the EV is purchased. Additionally, costs for installing an EV charging point can also be included.

Electric cars are not exempt from VAT though. However, if the car is solely for business use, you can claim back 50 per cent of the VAT.

Should we buy or lease electric vehicles?

Some people prefer to buy a vehicle because they like the idea of owning it outright.

However, leasing can be more attractive since it offers a hassle-free way to drive a new car for a few years before returning it and choosing another one.

If you enjoy switching cars every two to four years, leasing is usually the more affordable option.

When a vehicle is leased, the full leasing costs of the electric vehicle can be deducted from the business’s profits. The typical 15 per cent restriction on car leasing costs only applies if the vehicle’s emissions exceed 50g/km.

If your business is not in a financial position to purchase an electric car outright, then leasing may be a more viable option as you can spread the cost over the period of the leasing agreement.

Long-term savings

While the initial cost of an electric car can be daunting when compared to the price of your standard petrol or diesel vehicles, the long-term savings can eventually offset this expense.

Generally, electricity is cheaper than fossil fuel, so no more expensive refuelling for any long-distance travel for business meetings. Also, because they have fewer moving parts, there is less that can potentially go wrong and replacement parts usually cost less making maintenance costs lower.

Charging infrastructure considerations

As the population becomes increasingly aware of the effects of climate change and actively makes lifestyle changes to offset the impact, many will also expect their employers and the companies they do business with to follow suit.

The Government have put a Workplace Charging Scheme (WCS) in place as another car tax relief initiative.

The WCS is a grant that helps businesses like yours reduce the costs of installing electric vehicle charging points.

It’s important to note that the WCS can reduce the cost of an EV charge point socket by up to 75 per cent, with a cap of £350 per socket. Additionally, it only allows for a maximum of 40 sockets to be installed per applicant business.

There are a variety of grants available towards the installation of electric vehicle charge points and infrastructure. You should consult an expert to find out which ones you may be eligible for.

How will it impact the ESG of the business?

Adopting electric cars shows your company’s dedication to social responsibility which resonates positively with customers, employees, and stakeholders who value sustainability.

By lowering operational costs through reduced fuel and maintenance expenses, electric cars not only enhance financial performance but also ensure long-term competitiveness.

Overall, integrating electric vehicles into the business not only improves Environment, Social and Governance (ESG) metrics but also positions the company as a forward-thinking and environmentally conscious organisation.

How we can help

Our expert team are here to help you understand the pros and cons of introducing electric cars into your business.

We’ll help you navigate the complexities of the tax reliefs and grants you have available to you to help boost your business financials.

If you want to learn more about how electric cars can help boost your business, get in touch with our team.