Consultants with a limited company - why it’s time to go electric with your next new car

Why it's time Consultants with a Limited Company to go for a new electric car 

Consultants moving to alternative fuels for a new car (or van, bus or lorry) come about for various reasons. There are tax advantages for the employer (and the employee), they perform robustly (if not better than petrol or diesel options), they can offer lower running costs and, in some cases, they offer a cheaper driving experience amidst a changing landscape on the UK roads.

With e-car lease being based in Leigh, near Manchester, we know first-hand how changes are afoot in the area we live or commute to, with new signage appearing on our roads making it clear that a Clean Air Zone (CAZ) is upcoming. To be clear, the CAZ is not a new prospect or standard; these have been arising in cities throughout the UK over the course of the last 2 years. In turning to the Gov website UK drivers will note the cities which already have measures in place.

But, to be clear, this is not about a push to electric at this juncture. The focus is very much about removing the most polluting of vehicles, in petrol and diesel format, so that our cities are no longer congested or environmentally unsound. Petrol cars must adhere to Euro 4 standard and diesel cars must adhere to Euro 6 standard for example.

While Manchester has not yet implemented a formal scheme, this is something which has been on the agenda during 2023 and not without controversy. Only recently the Greater Manchester council confirmed a substitute solution, which instead of using a charging zone to fine incompliant vehicles, they will instead use an investment approach through their transformation Bee Network.

While there would be no “charging zone” there would be schemes like a £50m investment into zero-emission buses, a £30m grant for greener taxis and some £5m to improve roads and traffic flow. While not formally approved, Manchester is now under pressure to make some decision for the constituencies to provide residents and businesses with clarity about their transport moving forwards.

Plus the Government are directing Greater Manchester to ensure their roads meet legal limits for nitrogen dioxide by 2026 at the latest. 

While there may not be a financial compulsion for Manchester’s consulting firms to go into BEVs because of the above, this doesn’t mean the electrification of their transportation should not proceed. For many consultants, utilising a limited company (separate legal entity) is both a tax-efficient and legally robust way to do business.

However, there are a number of obligations which follow such as filing your accounts with Companies House, keeping accurate company records and paying your Corporation Tax on time. It is the latter, your business tax, which is something many consultants pay particular attention towards (especially in small and medium lifestyle companies).

As many company owners are now aware of, the Corporation Tax rate for 2023/2024 is 25%, which is a considerable increase on some of the historic levies. This means tax efficiencies are now mandatory in all aspects of company life, including your fleet choices.

Electric vehicles have become topical for many organisations, whether they buy or lease, because of their beneficial tax treatment. For consultants, before EVs became available (or affordable), it was not uncommon for directors and employees to utilise cash for cars (car allowance) rather than benefit from a company car because of the level of company car tax they would incur.

But at 2023, some 3 years deep into mass-adoption, fleets and salary schemes all across the UK are beginning to swell again with the lithium-ion tech. And this just doesn’t benefit the employee.

When a limited company utilises a purchase product on their vehicle - this could be Hire Purchase, Contract Purchase or Lease Purchase - they seek to claim Capital Allowances. For a car which emits 0g/km of Co2 (zero emissions), this is allowed to claim 100% of the capital cost in year one, so in effect allows a consulting limited company to effectively reduce their profits subject to Corporation Tax by the vehicle cost (and any corresponding interest). In contrast, a vehicle which emits between 1 - 50 g/km of CO2 can only claim 18% per year and those which emit 51g/km (or more) can only claim 6% per annum. 

In short, it would take years for businesses to achieve the tax advantage of an EV compared to your combustion models. With contract hire (or leasing), as an operating lease the approach to tax is a little different. This usership product allows a company to claim tax relief on any rentals made during that tax year. However, 100% of the rentals can only be claimed where the vehicle emits 50g/km of CO2 or less, thereby reducing the tax efficiencies of many combustion options save for some plug-in hybrid electric vehicles (PHEVs).

For tax savvy business owners, there are some additional benefits in pursuing electric cars. For any charge point infrastructure installed at the office or home, the company is able to utilise capital allowances on these assets, so effectively can write-off any investment against their tax (see full expensing from HMRC).

And with your business paying your electricity bill at the office, use this to fuel your EV. Unlike petrol or diesel which incurs the private fuel benefit, electricity is NOT considered a benefit - so free fuel is a possibility with a battery vehicle. 

The other consideration is company car tax, which really is the main driver behind EV adoption in the UK. Over the last 10 years, the UK’s taxation landscape on corporate vehicles has not been particularly welcoming, with many employees using their personal income (via a car allowance) to procure a new car. To be clear, a director of a limited company is an employee, even if they are a shareholder / the owner too. What this means is that in receipt of any vehicle they will be taxed on the Benefit in Kind (BiK) - this is what we refer to in the UK as company car tax. The amount of tax you pay is determined on a series of factors including:

•  The value of the vehicle including VAT, road fund licence, delivery charges and VAT - known as the P11d;
•  The CO2 of the vehicle - tailpipe emissions determine the “appropriate percentage” for the car; and
•  Employee tax rate - apply the percentage to the calculation above.

In summary, the more expensive and polluting your vehicle is, the greater the tax exposure will be. This is somewhat more prevalent in cases of higher earners, 40 and 45%, who enjoy luxury cars. To be clear, not only will the company be paying a premium in the purchase cost or the monthly rental, but the employee could be paying a not-so-dissimilar amount in tax.

It would be unsurprising to discover that many successful limited company consultants are not driving their petrol or diesel Range Rovers on a company car scheme. In stark contrast, an electric vehicle, with 0g/km of CO2 will be subject to just a nominal 2% “appropriate percentage” on BiK until 2025.

This equates to minimal income tax exposure, even on the more expensive luxury cars. And with the ultimate luxury SUV, the Range Rover, announcing their upcoming model, this is the type of car for many high-flying business owners to enjoy. Pre-order your new all-electric Range Rover today.

And it was a pleasure to help a local Manchester business go electric recently, with the amazing EV pictured here. In terms of the car shown, the Volkswagen ID.3 HATCHBACK 150kW Family Pro Performance 58kWh 5dr Auto [120kW Ch] (Pure Electric Vehicle), this is based on the following configuration:

•  Moonstone grey Solid paint
•  Flow design/Art velour microfleece cloth - Dusty grey/soul black
• 18" Aero steel wheels
•  Mode 3 / Type 2 Charging Cable (Public Charging & home wallbox charger – Fast

But how does the ID3 perform - is it actually a good EV?

This FWD SUV will have an 87 kWh usable battery which will offer 0 – 62 times of 7.3 seconds, 99 mph top speeds and 150 kW (or 201hp). Expect a combined winter range of 180 miles with warmer weather allowing for 250 miles.

On charging, the 11 kW AC max will allow 6 hour and 15 minute 0 – 100% charging times with the 124 kW DC maximum allowing 31 minute 10 – 80% times. A cargo volume of 385 L is available with this car. It has a vehicle fuel equivalent of 150 mpg. This EV will have no Bidirectional charging. And the car will not be able to tow.

Want more help or advice in transitioning your consultant fleet to all-electric? Just use our amazing tools and guidance on the e-car lease website for a detailed analysis or simply call our experts today.