Do drivers dream of electric cars?

(This article on electric cars first appeared in the Winter 2017/18 edition of our Connect newsletter.)

It will now cost you £21.50 to drive into central London if your car is more than 10 years old. If it’s a diesel, by next April it could cost you £24. Edinburgh and Glasgow councils are considering their own congestion charges with additional charges for diesels – £20 a day is proposed in Edinburgh – which could be in effect by 2020. And certain councils have already introduced additional parking charges for cars with diesel engines.

The UK Budget also sought to discourage diesels: new diesel cars face being put in a higher VED band, and drivers of diesel company cars will face a 1% increase in company car tax.

Benefits for company electric cars

Meanwhile, electric vehicles are being encouraged through benefits in kind taxation on company cars. A taxable benefit in kind is due for employees who are provided with a company car, with a corresponding National Insurance charge for the employer. The taxable benefit is the list price of the vehicle multiplied by a percentage tax rate HMRC created based on the car’s carbon dioxide (CO2) emissions.

This means that electric cars and Ultra Low Emission Vehicles (ULEVs) incur reduced benefit in kind percentages, with vehicles omitting 0-50 CO2 g/km benefitting from rates as low as 9% (13% from 6 April 2018). Typical petrol vehicles will be subject to rates of 17% – 37% this tax year, with the lower rate increasing to 19% from 6 April 2018. Diesels incur an extra 3% surcharge.

A subtle but advantageous provision from this Autumn’s budget is that no benefit in kind will arise where an employer allows an employee to charge a company car at work. For petrol vehicles, the provision of company fuel can often lead to increased income tax and National Insurance charges which can, at times, be higher than the actual cost of the fuel provided due to a fixed rate fuel amount being multiplied by the car tax percentage. Electric cars and ULEVs can also benefit from salary sacrifice, following changes in April 2017 that restrict new schemes to cars with emissions of 75 CO2 g/km or less.

The head-to-head: electric vs petrol

The i3, BMW’s flagship electric vehicle, retails at around £30,000. The i3 would give rise to a taxable benefit in kind of £2,700 for this tax year, while a corresponding petrol 3 Series saloon, with the same list price and CO2 emissions of 102 g/km, would incur £5,700. Choosing the i3 would save the employee £3,000 per year at their marginal rate of income tax and mean a reduced National Insurance charge to the employer.

The future

This year, Volvo announced that it will make no new cars with petrol or diesel engines from 2019: everything it manufactures from then will have a hybrid or solely electric engine. The UK Government said that all new petrol and diesel engines will be banned from 2040, mirroring France (but 10 years later than Paris, which will ban these engines by 2030). Tesla announced an electric lorry that, they say, will be 20% cheaper to run than a diesel equivalent. Elon Musk predicted that running a diesel truck would soon be “economic suicide”.

There remain issues with widespread electric car take-up – not least the need to charge millions of cars in millions of locations – but problems with the technology and infrastructure are being solved at a rapid pace. The current direction of travel seems to be firmly set: it may be wise to consider an electric future.