by Ian Featherstone, account manager – supply chain at Energy Saving Trust
Imagine receiving a tax rebate of almost £200 per month, or if you are managing a fleet, a cheque worth £4,000 for each of your company cars. Well that’s entirely possible following the March 11 Budget.
Headline done, let’s look at what’s driving the policy.
Despite reductions in individual vehicle carbon emissions achieved by vehicle manufacturers in recent years, transport is the largest contributor of greenhouse gas emissions (CO2e) in the UK. Transport accounts for 28% of the total according to the latest data from the Department of Business, Energy and Industrial Strategy (BEIS), with electricity generation, the largest contributor until 2016, now down to 23% and falling rapidly. Add in the fact that cars (55%) and vans (15%) generate the majority of the emissions, the focus on decarbonising smaller vehicles on the roads is clearly necessary to meet the Government’s net zero emission target by 2050.
SMMT data shows that in 2019 more than 62% of new cars registered in the UK were sold to vehicle fleets or business users (organisations operating fewer than 25 vehicles). This means that incentives for company cars delivered through tax rates, thresholds and allowances, can have a lasting effect on the overall vehicle parc in the UK, as the majority of fleet cars reach the second-hand market within five years.
Treasury offers incentives to go electric
This hasn’t been lost on the Chancellor of the Exchequer. His March Budget delivered a comprehensive package of incentives for both company car drivers and employers, making a compelling case for Battery Electric Vehicles (BEVs) and Plug-in Hybrid Electric Vehicles (PHEVs). Naturally, other aspects need considering, such as where vehicles will be charged, the availability of suitable models and expense policies.
The bottom line is that there’s never been a better time for organisations to buy, lease and operate BEV and PHEV vehicles with the prospect of a handsome payback the reward for overcoming any obstacles.
The tax adjustment with the most immediate impact is the zero rate of Benefit in Kind for BEVs in the current tax year, which was covered in detail in the Benefit in Kind webinar on 24 January 2020.
The Budget went further, confirming the percentage rates through to the end of the 2024/25 tax year, giving fleets and company car drivers a five-year horizon on the decisions they make today.
Translating incentives into concrete savings
We compared a BMW 320 saloon car with an equivalent Tesla 3 BEV company car. Even though the P11d value of the BEV is £14,335 higher, the tax bill for a company car driver paying tax at basic rate is £6,941 lower over three years (or £193 per month) and their employer saves £4,789 in Class 1A National Insurance Contributions. Add to this significant savings in fuel and maintenance, it’s clear that there is a really strong financial case for choosing electric.
And there are early signs that the policy is working. SMMT figures show battery electric vehicle registrations tripled to 11,694 in March 2020 compared to the same month last year, with over 60% of them registered to fleets and businesses.
Other Budget announcements included the continuation of the Plug in Car grant with it’s maximum value reduced from £3,500 to £3,000 and the Plug in Van grant which remains at up to £8,000 per vehicle. Additionally, battery electric vehicles are no longer subject to the “expensive car” VED (road tax) supplement until 31 March 2025. Although the value of the workplace chargepoint grant per socket was reduced from £500 to £350, the number of sockets per organisation for which a grant is available was doubled from 20 to 40 increasing the total amount available by £4,000 per organisation.