Are environmentally friendly electric cars good for your bottom line?
It hasn’t been widely reported, but there’s a change on the horizon for how benefit in kind tax is calculated for company cars.
Historically, I have advised my clients to purchase their vehicle privately, or through private lease hire arrangement. 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 are 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 company car tax in 2020/21 for electric cars
New regulations from the Government state that anyone driving an electric company car registered after April 2020 will pay zero BIK (Benefit in Kind) tax on that car in the first year. This banding applies to purely electric vehicles which produces zero exhaust emissions. The rates have also been extended to hybrid cars with an electric range of up to 130 miles and emissions that are between 1-50g/km.
This is a short-term incentive, however, and the rates are set to rise by 1% and 2% in the subsequent years, before being equalised with the rest of the marketplace in the third year (2023/24). 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’.
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.