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Investing in electric cars: a wise move for businesses and beyond

In the bustling heart of London, where small businesses and tech start-ups thrive, the winds of change are blowing stronger than ever. As the owner of Price & Accountants, I’ve witnessed the transformational power of embracing innovation, and one remarkable change stands out: the rapid rise of electric vehicles (EVs). These vehicles are more than just a mode of transport; they represent a smart investment for businesses and individuals alike, driven by first-year corporation tax savings and a host of other benefits.

The UK’s Green Commitment

In a world gripped by climate concerns, the United Kingdom has set its sights on a greener future. With a pledge to achieve net-zero carbon emissions by 2050, the nation is turning its attention to sectors with the most significant impact. The transport industry, responsible for a staggering 25% of the country’s greenhouse gas emissions, is a prime target for change. Over half of these emissions, a notable 52%, emanate from cars. In response, the adoption of electric vehicles (EVs) has emerged as a strategic solution.

A Vision for Emission-Free Roads

The shift to EVs isn’t just a casual suggestion; it’s a well-planned vision that’s gaining traction. The Committee for Climate Change (CCC) declared in May 2019 that all new vehicles should be electrically propelled by 2035 or sooner. This stance is aligned with the ambitious goal of achieving net-zero emissions. Encouraged by this, the UK Government took action, announcing the phasing out of new petrol and diesel car sales by 2030. A subsequent commitment emerged: all new cars and vans sold in the UK will be zero-emission by 2035.

Clearing the Air of Pollution

With air pollution reaching alarming levels, road transport’s role as a major source of pollutants is undeniable. From Nitrogen Oxide (NOx) emissions contributing to roadside concentrations to particulate matter (PM) and volatile organic compounds (NMVOCs), the urgency for cleaner alternatives is glaring. EVs present a transformative solution, reducing these pollutants and contributing to cleaner air for all.

Unlocking Financial Benefits: Tax Advantages for Businesses

The allure of electric vehicles extends far beyond their environmental credentials. Fleet operators, whether from the public or private sector, as well as individual car owners, stand to gain substantial financial rewards by embracing this revolutionary shift. The inherent cost-effectiveness of electricity as a fuel, compared to traditional fossil fuels, translates to notably lower operating costs per mile. Moreover, the inherent mechanical simplicity of EVs leads to reduced maintenance requirements, resulting in diminished servicing expenses. This financial edge, complemented by enticing tax incentives, crafts a compelling case for businesses to transition to electric vehicles. The appeal of tax savings, in particular, holds undeniable sway.

In 2023/24, directors and employees driving fully electric company cars will be subject to a mere 2% tax rate based on the vehicle’s list price.

Case Study: David’s Electrifying Tax Advantage

Let’s delve into the inspiring story of David, a tech business director whose journey took an electrifying turn with the acquisition of an Audi Q4 e-tron—a fully electric company car. With a list price of £51,000, this cutting-edge vehicle opened the door to a world of financial benefits. In its first year, the car enjoyed a remarkable 100% capital allowance on its purchase, further elevating its appeal.

As the tax year 2023/24 unfolded, David found himself in the midst of a remarkable fiscal advantage. Thanks to the car’s fully electric nature, his taxable benefit plummeted to a mere 2% of its list price. With a broad smile, David shared his delight, “I am loving it! It is comfortable and drives like a quality machine, with accompanying massive tax perks! For the current year, 2023/24, I will be taxed on only 2% of the list price, amounting to just £1,020, tax amount is estimated to be £408 (assuming director or key employee is a higher rate tax payer)”

This remarkable revelation serves as a testament to the significant tax advantages that electric vehicles bring to the table. With reduced taxable benefits, David’s experience showcases the financial empowerment that electric company cars can provide, making them an irresistible proposition for directors and key personnel alike.

Comparative Analysis: A Clear Advantage for EVs

A comparison of three car models—Tesla Model 3 Long Range AWD, BMW 2 Series Coupe M240i, and Mercedes-Benz E-Class Estate – E 300 Hybrid—underscores the EV advantage:

Car Model NamePriceCO2 EmissionBIK Tax (40%)BIK ValueCorporation Tax Savings (25%)
Tesla Model 3 Long
Range AWD
£51,000.000 g/km£408£1,020£12,750
BMW 2 Series Coupe
M240i
£51,000.00163 g/Km£7,548£18,870£765
Mercedes-Benz E-Class – E 300£51,000.0044 g/km£2,856£7,140

£2,295

Analysis: The Electrifying Choice

The numbers don’t just speak; they shout the benefits of electric vehicles. With benefit-in-kind (BIK) tax values and corporation tax savings distinctly favoring EVs, the financial wisdom of this choice becomes crystal clear. EVs not only contribute to cleaner air and a greener environment but also propel businesses towards substantial financial gains. As an advocate for small businesses and tech start-ups, I encourage fellow business owners to seize this opportunity, making a prudent investment in EVs that promises a cleaner, greener, and more prosperous future.