Business owners can make hefty tax savings by running an EV through their company. Richard Webber tries it
The government may have long since sparked out grants towards private electric cars, but business owners can still make big savings on zero-emission motoring.
According to tax expert Christiaan Hansen, a partner at JRW Hogg & Thorburn accountants in southern Scotland: “When you’re looking at tax savings for an owner-managed business, electric vehicles are one of the top opportunities.
“It’s a real winner, and we advise to make use of it especially while benefit-in-kind [BIK] rates are still relatively low.”
Meanwhile, the UK’s zero-emission vehicle mandate has been in force since January. Its targets, fines, CO2 credits and inter-manufacturer trading are a can of worms we needn’t hack open here, but the Society of Motor Manufacturers and Traders expects this year’s sales to fall short of quotas and by an even wider margin next year. Suffice to say, there are deals to be had to help reverse that.
And that’s not to mention the significant running-cost savings of EVs in the face of lingeringly high petrol and diesel prices.
As a small business owner myself, these factors tempted me to look at getting an electric company car of my own earlier this year.
To avoid the uncertainty of future residuals and to aid cash flow, I went for business contract hire (BCH) – essentially a long-term rental.
BCH allows VAT-registered businesses to reclaim half the VAT on rental payments, even if business-related mileage is low (you can only reclaim all the VAT in cases of 100% business use).
Additionally, the monthly payments are an allowable expense that can be offset against tax on the business’s profits.
Deals vary wildly, so shopping around dealers and lease brokers is essential. You can get BCH on used EVs, which are usually at least two years old, but for me the savings weren’t enough to justify missing out on the latest models.
So, to borrow a phrase: what car? Our family daily was a privately owned 2009 Volkswagen Tiguan 2.0 TSI 4Motion Sport, and the new car had to perform similar tasks.
Four-wheel drive was inessential, but both front-runners happened to have it. One was the Subaru Solterra Touring: I like the brand, it’s brisk at 6.9sec from rest to 62mph and standard equipment is excellent, but it waned on aesthetics, range and boot space.
The Skoda Enyaq 85x Sportline Plus couldn’t quite match the Subaru’s kit but had much more space, a little more pace, a quarter more range (officially 328 miles in total) and, in a sober colour, I could handle the subjectively awkward styling. Its smarter interior and the proximity of a Skoda dealer would be welcome bonuses.
Although the Solterra’s retail price of £54,840 was £6235 higher than the Enyaq’s, the BCH payments quoted by Subaru dealer AF Noble & Son in Penicuik came in lower. Opting for a three-year term and an annual allowance of 5000 miles, it was priced at £458 per month, financed through Black Horse.
Once pearl black paintwork was added, lease broker Fleet Sauce in Wrexham quoted £521 per month for the Enyaq via Lex Autolease. There was nothing extra to pay in month one on either vehicle; just 36 equal amounts.
For the Skoda, that schedule was only about 1% more expensive over three years than shelling out 12 months up front: a small price for improved cash flow.
The tax savings vary depending on a few things: whether you’re a sole trader on the one hand or a limited company director taking most of your pay via dividend on the other; what your personal tax band is; what level of corporation tax your limited company pays; and whether your business is VAT registered.
A non-VAT-registered sole trader in the basic rate band will save 20% compared with paying for the same car out of their after-tax earnings on personal contract hire. In other words, they would give up £417 in monthly take-home pay for the Skoda rather than £521. If they are VAT-registered, the saving increases to 27%.
A director in the basic-rate band whose VAT-registered business makes less than £50,000 in profits will escape various swathes of VAT, corporation tax and dividend tax to save 32%. And in the other extreme, for directors that sit in the additional band and whose businesses clear more than £250,000 in annual profits, the saving rockets to 58%, making effective payments for the Skoda just £217.
In summary, the more personal and corporation tax you normally pay, the greater the saving, which increases further with VAT registration.
That’s the headline takeaway, albeit there are several other considerations, which are summarised on the next page.
Having done the maths for myself, the Enyaq’s extra virtues won out, and after a business credit check and a two-month wait, the car was delivered right to our doorstep.
The only extra was a one-off broker’s ‘booking fee’ of £240, which raised the average cost to £528 per month before the tax savings.
Talking of savings, I wasn’t fully prepared for the cheapness of charging via EV-focused domestic off-peak electricity tariffs.
I went with Octopus Energy’s Intelligent Octopus Go, which cut my unit costs by almost 70% to 7p per kWh between 11.30pm and 5.30am.
Based on the 3.3 miles per kWh we have averaged from the Enyaq, our 5000 annual miles now cost just £106 in total – as much as a single tank of petrol not that long ago. Compared with the (admittedly dreadful) 22.3mpg our Tiguan managed, that’s an implausibly brilliant 93% saving.
The tariff was set up via Octopus Energy’s app, which also automatically creates charging schedules to utilise the cheap rates.
We find the Skoda’s real-world range is about 255 miles and generally expect up to half of that to be available from an overnight off-peak charge.
In five months of use, we haven’t needed to charge any other way. (And you can use the discounted energy for whatever you like – cue some late-night tumble-drying and ironing.)
For charger installation, I chose Energize Electrical, a family-run local business in Edinburgh. They did a detailed survey and recommended an Ohme ePod, a relatively compact charger that doesn’t have its own tethered cable, which would have been overkill for the once or twice a week I’d use it.
A dedicated EV board with surge protection was also recommended due to the museum-worthy condition of my fuse board, as was water and gas bonding for safety. Most of the cabling would run beneath the floorboards.
The total came to £1344 including VAT but, as Energize pointed out, government grants of up to £350 are available towards charger installations for residential tenants, owners of flats and businesses getting on-site chargers (your home counts as a business site in some circumstances).
My other half’s sociable relationship with kerbs plus the need to hand back the car in suitable nick led me to buy a three-year, multi-cover insurance policy consisting of tyre (£298), alloy wheel (£135) and cosmetic repair insurance (£210) from MotorEasy.
These are also allowable business expenses I’m confident will pay for themselves while also lending peace of mind.
So far, I’ve claimed for an alloy scuff, although when MotorEasy couldn’t provide a local repairer, I had to arrange it myself. Having shopped around, the £100 expense limit (less £25 excess) proved unrealistic.
SRS Alloys in Edinburgh came closest at £114 for a diamond-cut repair, but it did a top job at that.
The Enyaq has been a delight. Truth be told, its power and commendable poise are rarely put to proper use but, as is the case with most EVs, the fuss-free way it dispatches humdrum journeys has significantly improved our busy lives, as has its capacity for swallowing people and cargo.
Its salubrious cabin, slick smartphone integration and obliviousness to the inconvenience and expense of petrol station visits are also key draws. Gripes are few: the driver assistance systems are highly strung, and a faulty tailgate latch needed to be replaced under warranty.
Zero-emission BIK rates are on the rise from April 2025, when EVs will also cease to escape road tax. So while BCH deals are plentiful, it seems a case of better sooner rather than later to enjoy this professional perk.
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