Plugging into electric cars: calculating the cost
In recent times, running petrol or diesel company cars has become increasingly expensive for the family business. Electric vehicle (EV) technology is being embraced by all the main manufacturers and under the Labour government encouragement is expected to continue as part of the ‘net zero’ agenda. The purchase of EVs are favoured by the tax system with attractive (25%) corporation tax relief and low Benefits in Kind (BiK).
Previously, as well as overcoming some of the practical challenges, there have been valid concerns over the resale value due to uncertain battery life and quickly outdated technology. The UK government’s ban on the sale of new petrol and diesel cars is seemingly to be accelerated back to 2030, so change is coming. Maximum EV ranges and battery-life performance continue to improve alongside efforts to roll out the availability of charging points, such that the adoption of EV technology for a family business is worth considering and the question may become when rather than if.
The larger purchase cost and lack of choice of models available are no longer overriding issues. All mainstream manufacturers provide EV options with ever improving refinement, maximum range, and performance.
As well as technology improvements continuing to drive down the purchase price of EVs, there is also a real financial incentive. In the first year, the total cost of a new EV is 100% deductible against company profits for corporation tax purposes, lowering the overall bill by 19 - 25% for a family company that has taxable profits. The initial financial saving remains an attractive feature.
| For example: The annual BiK tax payable for an executive model car, with a £45,000 P11D price and 160g/km CO2 emissions, would attract 37% tax, resulting in an annual tax bill of over £6,600 for a 40% taxpayer. On the other hand, thanks to a 2% BiK rate for EVs for 2024/25, rising to 3% in 2025/26, 4% in 2026/27 and 5% in 2027/28, a driver who switches to a fully EV for the same price would face an annual BiK charge of just £360 in the first year. |
Despite BiK rates rising to 5% by 2027/28, this still remains a significant reduction compared to traditionally powered vehicles. Electric cars are currently exempt from road tax (Vehicle Excise Duty -VED, although this is due to change from 1 April 2025 when the current exemption will be withdrawn. However at least EVs registered before 1 April 2025 will not be subject to the ‘expensive car supplement’ (cars costing over £40,000) currently £410 a year and lasting for 5 years.
Acquiring a new EV through a family company means that the cost of a value write down is carried by the company rather than the individual. Therefore, purchasing a new EV for use by a family member, through the family company, could prove to be a smart financial move.
Running an EV doesn’t magically remove all running costs, though EVs do have fewer moving parts than traditional vehicles. Vehicles driving higher mileage are capable of running up sizeable energy bills and sourcing relevant mechanical assistance can be an issue. Still, you can expect considerable cost per mile savings compared to petrol and diesel cars and there’s good news on the depreciation and lease cost front too.
Against the running costs and tax savings, you should carefully consider the real-world practicalities of range limits and recharging while public chargers are still being built in significant numbers.
If you are interested in converting, please talk to your usual Crowe advisor.
