We recently discussed the tax implications of switching to an electric vehicle as your company car. In this article, we discussed new tax regulations which would bring the benefit-in-kind taxation down to zero on company cars, leaving you with hundreds of pounds extra in your pocket each month. However, the fiscal implications of switching to an electric vehicle are not reserved to your pay packet. Taxation of travel in the UK has many facets and, often, we are unaware of the amount we can be paying over an extended period on road tax, congestion charges and other taxes.
Firstly, we understand that congestion zones currently exist only in London and Durham in the UK. However, with the government’s green energy targets, a number of major cities and towns are set to emulate these schemes over the few years. In Scotland, the SNP have outlined their targets to dramatically reduce traffic in and around Glasgow and Edinburgh by 2021 and 2022 respectively. Taking London as an example, the current congestion tax costs £11.50 per day per vehicle between 07:00 and 18:00, Monday to Friday. While many people do not drive to work in central London, it may surprise you how wide an area the zone covers. Many people innocently drive around the fringes of the zone and can find themselves being charged without even realising it. If we take the London rate as a benchmark to apply to all cities and look at an average family, they may pop into town once a week for a day out or to do some shopping. Over the course of a year, this would amount to £598 if they took the car each time. Moreover, in many cities, driving into work is much more widespread than London so the charges would mount up very quickly. That said, the congestion does not apply to low or zero emission vehicles. Driving an electric vehicle to work each day of the year would cost you nothing but driving an equivalent petrol vehicle could cost upwards of £2,500.
Secondly, road tax in the UK is currently a flat rate of £150. Until recently, alternatively fuelled vehicles only received a £10 discount. However, recent changes mean that plug-in hybrids with emissions less than 100g/km pay anything from £0 to £135 based on residual emissions. Moreover, zero-emission cars are completely exempt so pay nothing. It is also worth noting that cars purchased for more than £40,000 after 1st April 2017 must pay additional road tax for the first five years. For petrol or diesel vehicles this is £455 per annum and for electric vehicles it is £350.
Finally, unlike regular cars, electric vehicles and those with emissions less than 50g/km are eligible for 100% capital allowances. This allows a business owner to deduct the full value of the vehicle from their taxable profits. Any vehicles with emissions greater than 50g/km are only eligible for 8% capital allowances under the ‘special rate’ band. For example, a £40k regular emissions car would be eligible for £3,200 capital allowances and so would reduce tax by £608. In comparison, a low emission vehicle of the same value could reduce tax by £7,600.
To illustrate all of this, let us create a scenario: a small-business owner who drives to work just inside the congestion zone and has recently purchased a new £45,000 vehicle. This would be the difference in tax over the first year:
| Taxation Category | Zero or Low Emissions | Regular emissions |
| Congestion charge (45 weeks) | £0 | £2,588 |
| Road Tax (including additional) | £350 | £605 |
| Capital Allowance Tax Saving (to deduct from taxable profit) | (£8,550) | (£684) |
| Net Tax Impact | (£8,200) | £1,299 |
As you can see, purchasing the electric vehicle could result in a massive saving of £9,499 in the first year alone. On one hand, switching to electric makes sense to our environment and to make a difference to the world in which we live. On the other, it will simply save you money in both the long and short term.
If you are thinking about switching to an electric vehicle and would like to talk to a member of our team about tax implications or anything else. We would be happy to discuss this in more detail and answer any questions that you have. Call us on 0141 280 8890 or drop us an email at info@britetechnicalservices.co.uk.
We also have a variety of platforms available with extensive information about electric vehicles (brite-ev.com), EV chargepoints (evchargepoints.com) and EE accessories (briteaccessories.com).
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Author – Iain McComish of evchargepoints.com
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