Creative Finance 3: Making the Switch to Electric Vehicles

Does your business have a fleet of vehicles and/or provide company cars for staff? Do those vehicles run on petrol? Are you interested in reducing your taxes and saving money on running costs? Would you like to do your bit in the fight against climate change?

If the answers to those questions are yes, yes, hell yes, and that would be nice, switching to electric vehicles could be the best decision you make this year.

Why go electric?

Before we get into the financial benefits of going electric, we need to talk about the environmental and legal implications of NOT doing so.

To fight climate change

We are sure you’ve heard that electric vehicles are ‘better’ for the planet, but in case you’ve been busy, here are the basics.

Cars that run on fossil fuels like petrol and diesel emit carbon from their exhaust, a major greenhouse gas that is causing our planet’s climate to change, as well as air pollutants like sulphur dioxide (SO2), nitrogen oxides (NOx) and particulate matter (PM) – all of which all harmful to our health. The combustion engines in petrol and diesel cars are also responsible for a lot of noise pollution.

EVs run on batteries rather than fossil fuels which means they don’t emit vast amounts of carbon dioxide into the air from their tailpipes (a major cause of climate change). They are also much quieter when running which helps to reduce the noise pollution on our roads.

It is important to mention that the current manufacturing process for electric vehicles uses many of the same processes and produces as much carbon as that of a regular car. This is due to the manufacture of lithium-ion batteries (the nickel and cobalt has to mined and transported) which is responsible for more than a third of an electric vehicle’s lifecycle carbon emissions. However, these emissions are balanced out later in the electric vehicle’s lifecycle.

To futureproof your business

The UK government has a target for all new cars and vans sold in the UK to be electric by 2030, and cities are beginning implementing Clean Air Zones; vehicles exceeding emissions standards will have to pay to travel through a Clean Air Zone. Bath and Birmingham have already established Clean Air Zones, with many more set to follow suit in 2021 and 2022.

Making the switch to electric vehicles (which produce zero tailpipe emissions) sooner rather than later will put you ahead of any future legislation and penalties that might be introduced.

To save money

Electric vehicles can save your business a significant amount of money because…

Electric vehicles are cheaper to run

Fuel is typically the second biggest vehicle-related cost for businesses and can account for as much as 25%-30% of fleet expenditure. Fuelling an electric car can cost up to 90% less than fuelling a traditional car as you can fuel an electric car from just 2p per mile. This is much cheaper than the 10-12p per mile it costs to fuel a petrol or diesel car.

Electric vehicles are exempt from first year road tax

Vehicle road tax is based on carbon dioxide emissions, and as fully electric cars do not produce emissions, they are exempt from first year road tax. Some plug-in hybrid electric cars with CO2 emissions less than 100 g/km, may need to pay anything from £0-£135 per year depending on the levels of CO2 emissions.

Electric vehicles can unlock other tax benefits

Drivers of fully electric company vehicles incur a Benefit In Kind tax of 0% in 2020/21, rising to 1% in 2021-22 and 2% in 2022-23. As an example, take the new e-Golf and compare this to the Golf GT Petrol 1.5:

Vehicle 2020 – 20212021 – 20222022 – 2023
e-Golf (BIK per year)£0.00£55.20£110.30
Golf GT Petrol 1.5 (BIK per year)£1,392£1,392£1,392

Vehicles with emissions of less than 50g/km are also eligible for 100% first year capital allowances. This means with electric cars, you can deduct the full cost from your pre-tax profits. On a car costing around £40,000 this could amount to a tax relief of £7,600 in the first year.

Electric vehicles are cheaper to maintain

Electric vehicle engines have just three main components – the on-board charger, inverter and motor – and far fewer moving parts. This means that Service, maintenance and repair (SMR) costs for plug-in vehicles can be significantly lower than internal combustion engine counterparts.

Electric vehicles are exempt from congestion charges

If your vehicles are travelling in areas where Clean Air Zones exist or are about to be introduced, then this also adds to the tax savings of electric driving over the year. The current congestion tax in London costs £11.50 per day per vehicle between 07:00 and 18:00, Monday to Friday.

Charging Electric Vehicles

On the road

One of the most common concerns that people have about electric vehicles is that they will run out of charge quickly and are therefore only suitable for short journeys. While this was true in the past, most electric vehicles on the market can deliver over 100 miles of range on a single charge, and many newer models can deliver over 200 miles. And, with the UK’s network of public electric vehicle charging points expanding all the time, longer trips can be managed easily with a little planning.

The cost of charging an electric vehicle at a public charge point will vary depending on how fast the charging takes place. Rapid charging will cost more but can recharge a car up to 80% capacity in 20 to 40 minutes.

On average, charging at a public charge point will cost between 14-30p per kW.

Charging at the workplace

If investing in a fleet of electric vehicles, it obviously makes sense to also invest in charging points for your business premises. The cost of charging will then be dictated by your electricity tariff, but could be significantly reduced if you also install a solar energy generation and storage system. We won’t go into the details now – that’s content for another chapter!

Workplace Charging Scheme (WCS) grant

The Workplace Charging Scheme, or WCS, offers financial support towards the up-front costs of buying and installing electric car chargers for many businesses. It’s a voucher-based scheme which can cover up to 75% of the cost of buying and installing electric car chargers, up to a maximum of £350 for each socket (up to a maximum of 40 sockets). You need to be the owner of the property where the charger will be installed, or have the landlord’s consent to do so, and you’ll need dedicated off-street parking.

How much do electric vehicles cost?

The average electric vehicle is priced between £25,000 to £30,000.

The government offer a Plug-in Car grant that provides a discount of up to £2,500 for eligible cars and up to £6,000 for eligible vans. Grants are also available for motorcycles, mopeds, taxis, and trucks (up to £16,000). However, the Plug-in Car Grant is given to the manufacturers and dealerships selling the vehicles, so that the discount will already have been applied when you are presented with the purchase price.

So how will you fund your business’ electric revolution? Paying in cash is an option, but it often makes more financial sense to lease vehicles. This not only prevents you from sinking cash into assets that are only going to depreciate in value, but also enables you to spread the cost over time, keep cash in your business, and possibly unlock significant tax benefits.

If you are interested leasing electric vehicles for your business, get in touch with our vehicles finance specialist, Rochelle, at rochelle.wilson@bluestonevehicles.com.

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