DUTY CALLS
What do the changes to Vehicle Excise Duty mean for businesses switching to electric? Neill Emmett, head of marketing at ALD Automotive | LeasePlan, explains all
The clock is ticking
Despite the revised 2035 deadline for an end to the sale of new petrol and diesel sales, many fleet-operating businesses are still planning to switch to electric. To support them in their journey to greater sustainability, the UK government has implemented financial incentives to help promote electric vehicle adoption, including tax exemptions and grants.
These include support with EV charge point installation, Clean Air Zone (CAZ) and Ultra Low Emission Zone (ULEZ) exemption, and a host of tax benefits. However, at last year’s Autumn Budget, the Chancellor announced that one of these tax benefits – an exemption from paying Vehicle Excise Duty (also known as car tax) – will end in April 2025, leading some businesses to question the impact this will have on their fleet savings.
The current landscape for EVs
The incentives referred to above make EVs more financially viable to businesses, which are, therefore, more likely to prioritise EV adoption at an earlier date. It’s an important pull for businesses where budgets may be tight, particularly within the context of rising interest rates.
But, with nearly 850,000 pure EVs currently on UK roads as of August 2023, the EV market is growing rapidly, and electric driving is now entering the mainstream. As such, the Government is reviewing its current policies as it strives for fiscal sustainability.
Naturally, the removal of any financial incentives has the potential to impact public perception and may lead to a slowing down of the current rate of EV uptake we’ve seen these past few years. However, LeasePlan and Deloitte’s Fleet Funding and Taxation Guide, an easy-to-follow guide of the UK’s tax system’s impact on company vehicles, has found that businesses can still make considerable savings for both job-need and perk vehicles when calculating the whole-life costs (WLC) of an EV compared to a petrol model.
Financial implications of introducing VED to BEVs
A key finding from the case study is that the additional rate VED supplement for cars with a list price over £40,000 will have a material impact on the costs involved. In March 2023, the additional VED supplement adds £390 a year to the cost of VED, starting after the first year. Over a 48-month replacement cycle, this would add at least £1,560 to the overall cost of VED (although this number is likely to be higher after accounting for inflation).
The results for the job-need cars show that the introduction of VED for BEVs will increase the WLCs of funding these cars, which will reduce the potential savings these vehicles offer when compared to petrol or diesel alternatives. However, the cost increase is relatively low, meaning the savings offered by the BEV modelled would fall from 11% to 10%, which is unlikely to have a material impact on decision-making.
“The journey to electric driving isn’t just about saving money. It’s about protecting the planet, and that’s something you can’t put a pound sign on”
Keeping EVs attractive to businesses
It’s worth noting that despite the more material increase in whole-life costs for a BEV, it still offers a saving compared with the diesel engine alternative modelled. The removal of the VED exemption for BEVs in April 2025 will see costs increase, with a more noticeable impact for any cars attracting the additional rate VED supplement. However, at the same time, the Autumn Statement confirmed that arguably the biggest EV incentive, in the form of low company car tax rates, will remain in place until April 2028, meaning these cars can still offer a cost-effective option.
It’s also important to consider the bigger picture. The journey to electric driving isn’t just about saving money. It’s about protecting the planet, and we all have a part to play in supporting EV adoption. Zero-emission vehicles represent a key step in reducing our global carbon emissions – and that’s something you can’t put a pound sign on.
