Switching to electric vehicles (EVs) is becoming increasingly popular for businesses, with benefits ranging from environmental impact to tax savings. If you’re considering adding an EV to your fleet or replacing company cars, understanding how tax relief works and what the P11d implications could mean for you and your employees is worthwhile.

Why consider electric cars for your business?

Adopting electric cars isn’t just about going green – it can also reduce running costs and provide significant tax advantages. The Government encourages businesses to switch by offering tax relief on EV purchases and leases and lowering benefit-in-kind (BIK) rates for employees driving electric company cars. With fuel prices remaining high and clean air zones expanding, EVs are an attractive option for forward-thinking businesses.

Tax relief: How it works

The tax relief available depends on how your business acquires the vehicle. Here’s a breakdown of the main options:

1. Buying outright

You can claim a 100% first-year allowance if your business buys an EV outright. This means you can deduct the full cost of the vehicle from your pre-tax profits in the year of purchase. The car must be new and unused and produce zero emissions to qualify.

For example:

• A business purchasing an electric vehicle outright can deduct the full cost from its taxable profits, potentially saving a significant amount in Corporation Tax depending on the applicable rate.

2. Hire purchase

Hire purchase agreements allow you to spread the cost of the vehicle over time. With this option, you can still claim capital allowances, including the first-year allowance for qualifying EVs. However, the tax relief applies only to the repayments made during the accounting period.

3. Operating leases

Leasing an EV provides flexibility without the upfront cost of buying. While you can’t claim capital allowances, lease payments are fully deductible as a business expense. This can be particularly useful for companies managing cashflow or unsure about long-term ownership.

P11d implications: What it means for employees

Providing electric cars as company vehicles comes with much lower BIK tax rates than petrol or diesel vehicles. For the 2024/25 tax year, the BIK rate for EVs remains just 2% of the car’s list price, making it a cost-effective option for employees and employers. This low BIK rate results in lower taxable benefits compared to higher-emission vehicles, making EVs an attractive choice for company car schemes. However, it’s important to note that the BIK rate for EVs is scheduled to increase by 1% each year, reaching 5% in the 2027/28 tax year.

 

Pros and cons of EVs for businesses

 

Pros:

• Generous tax relief and low BIK rates:
  Electric vehicles offer a range of tax advantages, including 100% first-year allowances for new, zero-emission cars. This allows businesses to offset the full cost of a qualifying EV against their taxable profits in the year of purchase. For employees, the ultra-low BIK rate for EVs – currently just 2 – makes company cars an attractive perk with minimal taxable impact.
• Reduced running costs compared to petrol and diesel vehicles: EVs typically cost less to run than their petrol or diesel counterparts. Electricity is significantly cheaper per mile than traditional fuels, and EVs have fewer moving parts, which means lower maintenance and servicing costs over time. Businesses can also benefit from lower insurance premiums and exemptions from congestion charges in certain areas.
• Future-proofing your fleet against tighter emissions regulations: As emissions standards become stricter and clean air zones expand, traditional combustion-engine vehicles face increasing restrictions and penalties. By transitioning to EVs, businesses can avoid these additional costs while positioning themselves as environmentally conscious leaders in their industries. EVs also demonstrate a commitment to sustainability, which can enhance your brand’s appeal to eco-aware customers and stakeholders.
• Access to grants and financial support: Various government incentives are available to help offset the initial cost of EVs and charging infrastructure. These can include grants for installing workplace charging points or subsidies for purchasing electric vans and cars.
• Enhanced employee satisfaction and retention: Offering electric vehicles as company cars can improve employee satisfaction by providing a desirable, cost-effective perk. With more people interested in driving electric, EVs can become a valuable tool for recruitment and retention.

 

Cons:

• Higher upfront costs: Electric vehicles often come with a higher purchase price compared to petrol or diesel equivalents. However, this can be mitigated through leasing options, which spread the cost over time, and the generous tax relief available for outright purchases. It’s important to weigh the long-term savings against the initial expense.
• Limited availability of charging infrastructure in some areas: While the UK’s EV charging network is growing, coverage can still be uneven, particularly in rural areas. This can create logistical challenges for businesses with employees who travel frequently or operate in areas with fewer charging points. Investment in workplace charging solutions can alleviate some of these concerns.
• Potential range limitations, depending on the model: The driving range of EVs can vary significantly between models and is often shorter than traditional fuel vehicles. This may require additional planning for long journeys or businesses that operate with high-mileage requirements. However, advancements in battery technology are continually improving range capabilities, and rapid chargers can help address this issue for many users.
• Time required for charging: Refuelling a petrol or diesel vehicle is quick, whereas charging an EV can take longer, especially if fast chargers are unavailable. This could impact business operations if charging times are not effectively planned.
• Depreciation and resale concerns: The market for used EVs is still developing, and concerns about battery lifespan can affect resale value. Businesses need to consider the total cost of ownership, including any potential depreciation, when deciding whether to buy or lease.

Making the switch

Switching to electric vehicles isn’t just about following a trend – it’s about making a smart investment in your business’s future. The combination of financial incentives, reduced running costs, and alignment with environmental goals makes EVs a compelling choice for forward-thinking businesses. By taking advantage of tax relief and understanding the implications for employees, you can optimise your fleet for both cost-efficiency and sustainability.

While challenges like charging infrastructure and upfront costs remain, the growing support from government initiatives and technological advancements is making the transition to EVs more accessible than ever.

Whether you’re ready to make the switch or simply exploring your options, we’re here to help you navigate the benefits and considerations to find the best solution for your business.

GHLD are experts at helping businesses make tax-efficient choices. Get in touch to see how we can support you.