Electric cars make sense with new tax rates

Company car drivers will be able to make substantial savings by switching to a zero-emission vehicle before new company car tax rates take effect in April 2020, an analysis by automotive experts at Deloitte has concluded.

The Benefit-in-Kind tax due on a zero-emission vehicle will drop from 16% to zero.

Consequently, a higher rate (40%) taxpayer driving a diesel hatchback with a £30,000 list price would currently pay just over £18,000 in tax and fuel costs over a 48-month period.But the cost for a comparable all-electric vehicle would be just £916.

Total cost of ownership

Medium hatchback

Premium SUV

Electric

£916

£1,639

Diesel

£18,006

£49,036

Savings achieved

£17,090

£47,397

% savings achieved

95%

97%


The total cost of ownership includes company car tax, the cost of fuel for business and private mileage, less any business mileage reimbursement, over a 48-month replacement cycle.

Businesses will also find that the total cost of ownership for will be lower for some electric vehicles than for some petrol or diesel equivalents.For example, a company with 900 cars on its fleet could save more than £1.9 million a year by switching to electric from petrol or diesel.The savings could also be appealing to smaller fleets, with potential savings of around £100,000 a year (based on 35 medium hatchbacks and 15 premium SUVs).

The table below shows the total cost of ownership for a business providing an EV or diesel version of a medium hatchback with a £30,000 list price, or a £70,000 premium SUV.

Total cost of ownership

Medium hatchback

Premium SUV

Electric

£21,393

£43,121

Diesel

£27,139

£57,529

Savings achieved

£5,746

£14,408

% savings achieved

21%

25%


The total cost of ownership includes lease rentals, maintenance, motor insurance, social security and business mileage reimbursement, after applicable VAT reclaims and corporation tax relief, over a 48-month replacement cycle.

As a result of these tax incentives, and a greater choice of models available, Deloitte expects EV demand to increase sharply, with the biggest leasing firms already seeing double, and in some cases triple, digit growth in orders.

“We’ve seen electric vehicle popularity increase fourfold over the past year alone,” Michael Woodward, UK automotive lead at Deloitte, said.“For those thinking of making the switch, the tax changes for company cars from 6 April 2020 are certainly a strong incentive.

“For many businesses, there are operational, employee and environmental benefits in transitioning to EVs. However, the suitability of electric must make sense before making the switch.

“For some, EVs will already be a viable option given their fleet journey patterns, and next steps may simply be building a robust policy and plan to support wider EV adoption. For others, long-distance travel demands or knowing how and where to charge EVs will need more consideration. Businesses upgrading from diesel or petrol fleets may also require investment for on-site charge points.”