The number of tax breaks open to contractors is perhaps at an all-time low, however, electric vehicles offer one option that many contractors may still be overlooking.
Here, Chris Conway, Managing Director of Accounts and Legal, explains more:
An accelerating market
Until very recently electric vehicles had a bit of an image problem. As Carlos Ghosn, Chairman and CEO of Renault and Nissan, points out: “ten years ago people thought that electric cars would never make it, they thought electric cars were like a golf cart, something slow, bulky, not very attractive”.
That image is changing fast, though, with last year’s launch of Formula E, the world’s first fully-electric auto racing championship, demonstrating that electric cars can be just as fast, and just as cool, as their petrol and diesel counterparts.
Beyond the ‘cool factor’, though, it’s cost that will really drive the adoption of electric vehicles. With some commentators suggesting we’re on the brink of an ‘electric car revolution’, and that electric vehicles will be cheaper to buy than conventionally-powered vehicles just a few years from now, is it time contractors got in on the EV action?
Here are a few reasons contractors might find it increasingly cost-effective to go electric.
Two fully-charged grants
Plug-in car and van grants – Launched in 2011, plug-in car and van grants were created to boost the sale of Ultra Low Emission Vehicles in the UK, with access to a £400 million fund to make this happen.
The grants have now been extended to March 2018, although the amounts available changed in March 2016 in order to encourage the sale of fully-electric vehicles over hybrids. From March taxpayers can now apply for a car grant that covers 35% of the cost of the car, up to a maximum of £4,500 in the case of a fully-electric car.
There’s an even bigger grant available to contractors wishing to buy an electric van, which could benefit from a grant that covers 20% of the cost of a van, up to a maximum of £8,000. More information on the plug-in car and van grants can be found here.
The Electric Vehicle Homecharge Scheme – Of course, one of the factors that might dissuade someone from taking advantage of a plug-in car and van grant is the need for a recharging point. To that end, the government has launched the Electric Vehicle Homecharge Scheme in order to offset some of the upfront cost of the purchase and installation of a domestic recharging unit. Contractors that are the registered keeper, lessee or have primary use of an eligible electric vehicle can apply for a grant through this scheme, providing them with up to 75% (capped at £500, Inc. VAT) off the total cost of buying and installing a recharging unit. More information is available here.
Five high-voltage tax breaks
Exemption from Vehicle Excise Duty
Low emission vehicles, specifically those with CO2 emissions of 100g/km or less, are currently exempt from Vehicle Excise Duty. New VED bands are due to be introduced in April 2017, but contractors who decide to buy a fully-electric vehicle after this date will continue to benefit from this tax break provided the vehicle has a list price of £40,000 or less.
80% tax break on Van Benefit Charge (until 2018)
During Budget 2016 George Osborne announced that the VBC tax break for electric vans, which saw electric vans pay just 20% of the Van Benefit Charge levied against petrol and diesel vans, would be frozen at 20% until 2018. It had previously been suggested that the rate for electric vans would rise to 40% of the VBC in 2016-17 and 60% in 2017-18.
Approved Mileage Allowance Payments (MAPs)
Approved Mileage Allowance Payments allow employers to reimburse their employees if a private vehicle is used for business travel, without affecting the employee’s Income Tax liability. Despite the fact that electric vehicles are cheaper to power than an equivalent diesel or petrol vehicles electric cars and vans benefit from the same AMAP rate of 45p per mile (for the first 10,000 miles).
If they want to simplify their expenses then self-employed contractors can also use AMAP rates to calculate their vehicle expenses, provided they haven’t claimed the vehicle as a capital expense.
Mileage Allowance Relief (MAR)
If an employer only offers an employee a partial reimbursement when a private car is used for business travel then the employee can claim Mileage Allowance Relief on the balance. Again, electric and hybrid cars have the same entitlement to this tax relief as petrol and diesel vehicles despite being cheaper to power.
Exemption from London congestion charge
Fully-electric vehicles benefit from a 100% discount from the London congestion charge, representing a saving of £11.50 per day for contractors that travel into central London on a regular basis.
An electric saving
Recharging is significantly cheaper than petrol or diesel
While the cost may vary a little depending on the quality and efficiency of the lithium battery that’s installed, for most fully-electric vehicles a full charge should cost around £2 to £3 and will give a typical range of around 100 miles. By contrast, driving 100 miles in a petrol or diesel car will currently cost between £12 and £18.
Get your motor running?
Of course, electric vehicles, at least in their current form, do have one or two downsides – they are currently more expensive to buy than their petrol and diesel counterparts, for starters, and will remain so for several years to come.
The models that are currently available also have a shorter range than conventional vehicles – around 100 miles on a full charge at present. Finally, electric vehicles currently take several hours to fully recharge, compared with a minute or two at the pump for a petrol or diesel equivalent.
However, for many contractors, these drawbacks aren’t likely to have a major impact on their business travel, and the tax savings may just be enough to get more electric motors running.