Many drivers, especially those with company vehicles, are discovering the tax benefits of electric cars. Charles Calkin outlines all the considerations for purchase in a rapidly changing market.

According to the Bank of England, Britons have saved over £100bn over lockdown. Expect us to spend a large chunk of that in the coming year.
One decision many people had to postpone last year was buying a new car. For some of us 2020 was the year we planned to go electric. Despite covid-19, more than 76,000 battery-powered electric vehicles (EVs) were actually sold in the UK – around one in 20 of all sales.
But this coming year is likely to see many more silently glide off the showroom forecourts. And the people leading the charge (sorry for the pun), will be drivers of company cars and company owners. That is because of the tax perks.

Appealing benefits
Someone who took delivery of a new petrol-fuelled BMW 3-series company car (146g/km of CO2) last April is paying a benefit in kind (BIK) tax of 32%, rising to 34% by 2022/23. A similarly priced, top-of-the-range Nissan Leaf E attracts zero BIK this financial year, 1% next and 2% the year after. Do the numbers and you will see that the BMW costs over £13,000 more in tax over three years.

For business owners there are additional benefits. I have a number of clients with earnings in the £100,000- to-£125,000 bracket who are contemplating buying themselves an electric company car instead of taking the income. That is because with every £2 that you earn over £100,000 you lose £1 of your personal allowance. It brings your income tax rate to effectively 60%. Paying 0-2% in BIK is a lot more appealing if you are in that position! The total cost of the car can be written off against your profits in the first year, which cuts your corporation tax, too.

Of course, you do not have to be a business owner to enjoy the lower running costs of EVs. They can be half as much as for petrol and diesel, depending on your electricity tariff and the time of day (or night) you charge the batteries.

The average UK driver will cover 7,400 miles in a year and the average new car fuel consumption is around 50 miles per gallon. So a typical new car gets through 148 gallons of petrol in a year. If the average price per gallon is £5.45 that means the “average” EV driver will save around £400 a year in fuel. And they pay no road tax – adding another £150.EV drivers also enjoy 100% discount on London’s Congestion Charge. That can be worth thousands to the daily commuter, though a lot less to a pensioner in Birmingham!

There are negatives. The government offers a grant of up to £3,000 to buy an EV, as well as £350 towards the cost of installing a home charger, but they are typically as much as £10,000 more expensive than petrol equivalents.
In theory then, you might have to drive your EV for between 10 and 20 years before the lower fuel bills make you better off financially. But bear in mind that the government is determined to drive us to electric. New cars fuelled purely by petrol or diesel will no longer be sold in the UK by 2030. I can easily imagine policy measures to make ownership of fossil-fuel and hybrid vehicles more expensive.

Hybrid solution
Many drivers will of course also be drawn to the altruistic appeal of reducing vehicle emissions – for some it is difficult to put a price on that.

In the end, therefore, it may not be the costs that put people off buying an EV but ‘range anxiety’ – the fear of puttering to a halt on the middle of the M1 because you have run out of energy.

Read more: whatInvestment.co.uk

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