Buying an electric car is still an expensive exercise, although in 2022 we are now seeing a growing number of more affordable cars and a secondhand market growing. According to the Bank of England, the Brits have saved over £100bn over lockdown and the expectation is that a large chunk of this will be spent over the coming year. So why consider an electric car, apart from the obvious doing your bit for the planet?

If you don't know about the tax incentives of an Electric Vehicle (EV), read on, particularly if you are business owner.

Electric versus fuel

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.

Electric company car?

The tax incentives of buying an electric company car versus a fuel car are currently very attractive thanks to the government’s Green Agenda.
A business owner of a new petrol-fuelled BMW 3-series company car last April is paying a benefit in kind (BIK) tax of 32%, rising to 34% by 2022/23.
BIK is charged when a company car is used both personally and for the business. The rules are strict around exclusive business use, and invariably, most business owners suffer this BIK cost.
Contrast the BIK costs with a top-of-the-range new electric car that attracts zero BIK this financial year, 1% next and 2% the year after.
The numbers speak for themselves. In this example, the BMW costs over £13,000 more in tax over 3 years.

Business Owner?

If you are a business owner with turnover over £100,000, you could consider buying an electric company car instead of taking the income.
At £100K income or above, for every £2 you earn over £100K, you lose £1 of your personal allowance, which means the effective income tax rate is around 60%.
Instead, purchasing an electric car means you avoid this tax hike, pay BIK of 0-2% for personal use of the company electric car, plus you can write off the cost of the electric car against your profits in the first year, cutting your corporation tax or income tax bill.

Hybrid solution?

Many of us will be motivated by the tax savings but may have ‘range anxiety’ – the fear of puttering to a halt on the middle of the motorway because you have run out of energy.

One solution is to buy a plug-in hybrid. These will drive the first 30-40 miles in electric mode (which
may cover most of your day-to-day needs) but then the petrol engine will kick in when you have drained the battery.

However, the BIK rates for these are not as attractive. You also have to pay road tax, and from 2021 you would not be exempt from the London’s congestion charge as you would be if you get a pure EV.

Range issue will subside for the pure electric cars as technology improves. Tesla CEO Elon Musk says an electric car with a 435-mile range is coming. And around 500 public charging points are being added to the UK network each month – there are over 35,000 in the UK now.

Still on the fence?

With the government announcing that fuel and diesel cars will no longer be sold in the UK after 2030, you would expect new and cheaper releases of electric cars coming on the market. There will likely be many households who will be able to run two cars, a small electric runaround with the second vehicle used for longer journeys until the technology catches up.

And with more electric vehicles being released, there will be an increase in the number of second-hand vehicles becoming available. For example, some three year old electric cars now cost between £10,000-£15,000 depending on mileage.

The market is changing rapidly, the cars and choice are improving, and to many people the financial benefits will add up. For those who are sustainability-minded 2021 may finally be the time to go electric.