FINANCE

THE UK GOVERNMENT ’ S COMMITMENT TO ACHIEVING NET-ZERO EMISSIONS BY 2050 AND THE ACCOMPANYING TAX INCENTIVES ARE PIVOTAL FACTORS DRIVING THE INTEGRATION OF ENVIRONMENTAL , SOCIAL AND GOVERNANCE ( ESG ) PRINCIPLES INTO BUSINESS STRATEGIES . THE ADOPTION OF ELECTRIC VEHICLES ( EVS ) IS A KEY COMPONENT OF THIS SHIFT , OFFERING BOTH ENVIRONMENTAL AND FINANCIAL BENEFITS .

by CARA LANDERS , SENIOR MANAGER AT AZETS , Cara . Landers @ azets . co . uk

Simultaneously , substantial investments in battery technology by vehicle manufacturers have made EVs more affordable and efficient . UK government statistics indicate a 297 % increase in battery-powered vehicles on UK roads from June 2020 to June 2022 , reflecting the growing popularity of EVs . While ESG considerations are a significant motivator for businesses to transition to electric vehicles , the array of tax benefits available makes this shift even more compelling .

Why Should Business Owners and Employees Consider Electric Vehicles ?

1 . Tax Benefits There are several tax reliefs available to businesses , especially when opting for zeroemission electric vehicles . The primary tax benefits include :

Benefits in Kind ( BIK ) – EVs offer substantial advantages over both hybrids and petrol / diesel equivalents due to their lower BIK rates . For example :

Vehicle

Tesla Model 3 Long Range

BMW 330e M-Sport Pro

BMW 330d M-Sport Pro

List Price £ 46,990 £ 50,100 £ 49,150

CO2 Emissions ( g / km )

Diesel

0 34 136

BIK % 2 % 12 % 37 %

BIK ‘ Cash Equivalent ’

BIK Income tax @ 40 %

Class 1A NICs @ 13.8 %

£ 940 £ 6,012 £ 18,186

£ 376 £ 2,405 £ 7,274

£ 130 £ 829 £ 2,509

The BIK rate for electric vehicles is currently set at 2 % until the end of the 2024 / 25 tax year . However , this rate will increase by 1 % each year for the subsequent three years : 3 % in 2025 / 26 , 4 % in 2026 / 27 , and 5 % in 2027 / 28 . Despite these gradual increases , EVs remain significantly more tax-efficient compared to traditional petrol or diesel vehicles , which can attract much higher BIK rates​ .

Salary Sacrifice – Salary sacrifice schemes allow employees to exchange part of their gross pay for a qualifying non-cash benefit . While the Optional Remuneration Arrangements ( OpRA ) rules have removed the tax benefits for most salary sacrifice arrangements , Ultra Low Emissions Vehicles ( ULEVs ) emitting less than 75g / km of CO2 are exempt and can still be provided taxefficiently through salary sacrifice . Vehicles below 75g / km include all electric and hybrid models . Every major car manufacturer now offers electric and hybrid options across their model range .

Business Tax – Businesses can benefit from significant tax reliefs depending on how the vehicle is acquired . For zero-emission vehicles purchased outright or through hire purchase , enhanced capital allowances allow a deduction from taxable profits for 100 % of the vehicle ’ s cost , providing substantial tax savings . Additionally , businesses can claim enhanced capital allowances for installing electric vehicle charging points at their premises .

VAT – In rare cases , company cars may qualify for 100 % input tax recovery , but this is limited to vehicles with no private use . Input VAT can usually be reclaimed fully when purchasing a commercial vehicle ( e . g . van , lorry , or tractor ) used exclusively for business . If any private use occurs , input tax recovery should be proportionate to business usage .

2 . Enhanced Reputation Taking environmentally friendly actions is now crucial for businesses aiming to stay competitive . Additionally , many companies are required to report on their carbon footprint and can enhance their environmental credentials through ‘ green ’ certifications .

3 . Employee Attraction and Retention In a competitive labour market where base pay is under pressure , employers are exploring new ways to attract and retain talent . While raising salaries is an option , it increases long-term financial commitments with diminishing returns on employee loyalty . Offering company vehicles , particularly EVs , is an attractive alternative . The low BIK charges make this a cost-effective benefit for both employers and employees .

4 . Reduced Business Mileage Costs Businesses with significant mileage expenses can benefit from the lower charging costs of EVs compared to traditional petrol or diesel vehicles .

We are here to help For more detailed information on tax benefits and the implications of employees using their own vehicles for business purposes , or if you wish to discuss other employment tax matters , please get in touch .

Local Offices : Ashford : 01233 629 255 Canterbury : 01227 454 861 Maidstone : 01622 690 666 Orpington : 01689 827 505 Sandwich : 01304 249 997

www . azets . co . uk

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