Analysis
11 Mar 20

UK Government announces huge support for electric company cars

The UK government has announced five-year tax plans to reassure fleets about the positive long-term future for electric company cars.

In the Budget unveiled today, the government confirmed that zero emission battery electric cars will incur no benefit in kind tax in the 2020-21 fiscal year. The following year BEVs will be taxed at only 1% of their official list price, and this percentage will rise to 2% in 2022-23.

This level will be sustained throughout the tax years 2023 to 2024 and 2024 to 2025.

Fleet manager reaction

Caroline Sandall, chairman, ACFO, the fleet managers' association, described the government's move as 'hugely welcome' and said it could provide a significant boost in demand for company cars.

“Company car demand has been hit in recent years by year-on-year increases in benefit-in-kind tax and long-term rate uncertainty," she said. "However, the fact that rates are now known for the next five financial years - a full vehicle replacement cycle - gives planning confidence to both fleet decision-makers and company car drivers."

With the UK Government committed to ending the sale of new petrol, diesel and plug-in hybrid vehicles by 2040 and perhaps as early as 2032, "it is imperative that fleet decision-makers and company car drivers focus on moving towards operating and driving 100% electric vehicles," said Sandall.

Paul Hollick, chairman ICFM, said the Budget could prompt: "A resurgence of the company car. That's because many drivers’ decision to opt out of a ‘favourite’ employee perk was driven by tax uncertainty."

He added that: "It was a Budget that clearly drives fleets and company car drivers further along the ‘green’ road and that essentially means 100% electric vehicles."

Leasing industry reaction

Leasing companies echoed fleet managers' enthusiasm for the clear sense of direction delivered by the government.

Lex Autolease, the UK’s largest leasing company, said the freezing of company car tax rates until 2024-25 is: “great news for fleets planning on five to 10 year cycles.”

Eduarda Thomas, Principal Consultant at Lex Autolease, said the move: “gives decision makers the clarity they need to invest in greener fleets nows.”

Claire Evans, head of fleet consultancy at Zenith, a top 10 leasing company, said the government’s support for EVs achieves: “The goal of making electric transport the new normal by 2030. The Chancellor’s announcements will be welcome by fleet operators as it helps them address their bold ambitions to transition to cleaner technologies and provides drivers with the reassurance they need when adopting electric vehicles for the first time.”

New support for EVs

In a package of measures designed to support electric vehicles, the UK government has also pledged £500m to support the rollout of new EV rapid charging hubs, so that drivers are never more than 30 miles (50km) away from being able to charge up their car. It will also continueits financial support for plug-in vehicles until 2023 via a series of grants, although Sandall said ACFO was 'hugely disappointed' that the grant has been cut from £3,500 (€4,000) to £3,000 (€3,400) per vehicle, and will not apply at all to cars costing more than £50,000 (€56,000).

But there was further support for electric cars with the removal of a surcharge in Vehicle Excise Duty (VED - annual road tax) which applied to batery powered cars that cost more than £40,000 (€45,700).

EV support will accelerate shift to EVs

Gerry Keaney, Chief Executive of the BVRLA, which represents leasing and rental companies, said: “Tackling road transport emissions and improving air quality is top of the agenda for government, industry and society. The Plug in Car Grant and VED measures outlined today will play a massive role in making EVs more affordable for thousands upon thousands of businesses and drivers across the UK. Having a roadmap for the future of company car tax up to 2025 removes the uncertainty that we know stifles business decisions. The vehicle rental and leasing industry is ideally placed to drive rapid EV-transition in the UK and we will use these fiscal incentives to continue to lead the way in driving the shift towards cleaner road transport.”

Mike Hawes, chief executive of the SMMT, which represents vehicle manufacturers, said: “We are pleased to see the Chancellor find room in his Budget to help make zero emission motoring a more viable option for more drivers – essential if we are to begin to meet extremely challenging environmental ambitions. The continuation of a plug-in car grant is an essential step in the right direction and, alongside the removal of the premium car surcharge on VED and reduction in company car tax for these vehicles, as well as a strategic review of national charging infrastructure requirements, should help encourage consumers and support the beginnings of a market transition.”

In other steps, company car drivers in the UK will pay benefit in kind tax based on the WLTP CO2 emissions of their cars, for all vehicles registered after 5 April. For cars registered before 5 April, company car tax will continue to be based on NEDC emissions figures. The tax rates will adjusted downwards by two percentage points for WLTP-measured cars to take account of their higher recorded emissions.

Photo credit: Shutterstock

Authored by: Jonathan Manning