Firstly, let us make one thing clear; if you’re a company director or senior team member of a profitable limited company and you’re not currently running your car through the business you are missing out on very significant savings.
Whether it be an electric vehicle (BEV), or a plug-in hybrid vehicle (PHEV) with longer EV-range, there are simply so many options now available it is definitely time you looked to make huge savings on tax, as well as saving significant amounts on fuel and maintenance.
Challenge the noise…
There is a huge amount of negativity about electric vehicles in certain sections of the media at present, and Rishi Sunak’s recent announcement of delaying the combustion engine ban until 2035 hasn’t helped. However, it is a fact that 92% of our clients who have selected an electric vehicle have said they do not plan to go back to petrol and diesel cars ever again.
When it comes to running a car through your business as a director or business owner, the perceived wisdom has always been ‘my accountant has always said that it doesn’t stack up to run my car in the business’. This is 100% true for petrol and diesel vehicles where the ‘benefit in kind’ tax you pay for the privilege of running your car in the business makes it far less cost-effective. This all changes with long-range hybrid vehicles, and electric vehicles.
Firstly, electric vehicles:
If you think you’re ‘not ready’ for electric vehicles, consider our simple 2 question test before dismissing the idea.
- Do you regularly drive more than 200 miles per day?
- Do you have easy access to a charger on a regular basis?
If the answer to the first question is yes, stop and re-consider electric for now. We could tell you you’ll save lots of Co2, you’ll save a fortune in fuel costs if you’re doing a high mileage, and other noble reasons, but to be honest, at times driving 200 miles plus a day is likely to be a pain, or at least it is going to require planning.
If, like 96% of our driver clients, you do not do more than 200 miles a day, and you answered yes to the second question of having capacity for installing a chargepoint at home, what are you waiting for?
When it comes to hybrid vehicles, it is all about the EV-only range, as our table illustrates below. Your tax bracket is linked to how far the car is able to travel just on the battery. The higher the range, the lower the tax you’ll pay.
If you’re able to find a hybrid vehicle with range over 40 miles, and especially with range over 70 miles, it is likely a hybrid vehicle through business leasing will work out as a considerable saving over personally financed equivalents.
| CO2 (g/km) | Electric Range (Miles) | 23/24 (%) | 24/25 (%) |
| 0 | n/a | 2 | 2 |
| 1-50 | >130 | 2 | 2 |
| 1-50 | 70-129 | 5 | 5 |
| 1-50 | 40-69 | 8 | 8 |
| 1-50 | 30-39 | 12 | 12 |
| 1-50 | <30 | 14 | 14 |
How do the savings work?
Electric vehicles Lease Cost: £996 ex VAT (inclusive of maintenance and insurance)
Net monthly cost estimate: £683.20 per month (net of savings in corporation tax, income/dividend tax and VAT, and inclusive of benefit in kind tax due).
Personal lease estimated cost on like-for-like basis: circa. £1200 per month.
A few other notes to keep in mind
- VAT and maintenance: When it comes to leasing a business vehicle, you’re wise to always include maintenance in your contract. Whilst 50% of the VAT is reclaimable on business lease costs as the above shows, it is the full 100% of VAT that is reclaimable on the maintenance, effectively saving you 20% on your servicing and tyres, even before other tax considerations come into play.
- Energy costs: As we’ve previously illustrated, you should be saving 60-70% on your electric charging costs vs. the petrol or diesel you’ll pay for at the pump. Think 16p per mile with current fuel costs at the pump, and 4-5p per mile for the electric driving in your plug in car.
- Avoid the ‘mild hybrid’ illusion: If your car is a ‘mild hybrid’ it is effectively only a hybrid in name, with the likes of Toyota and Lexus, in particular, as well as Land Rover, bordering on misleading with their talk of ‘hybrid vehicles’ for those cars without a plug. None of these fall under the 50 g/km bracket that is a requirement to be tax efficient, and in reality, aren’t particularly great for your wallet or the environment.
Pike + Bambridge are the official partner of the Institute of Chartered Accountants of Scotland, and regularly contribute to industry expertise on tax-efficient methods for businesses and business owners to run their vehicles. See more for a recent tax webinar Pike + Bambridge CEO ran with ICAS regarding electric vehicles.
