Companies in the UK are increasingly looking to improve sustainability in all areas of their operations.
One area that presents a huge opportunity for reducing carbon footprints is the use of electric company cars. Switching to electric will help with a business’s corporate environmental goals and might offer some cost and operational benefits for businesses and their employees. Here’s why transitioning your company cars to electric could be smart!
Lower Running Costs and Tax Benefits
One of the most significant advantages of electric company cars is the substantial reduction in running costs. EVs cost less to maintain than petrol or diesel cars due to fewer moving parts and they benefit from lower running costs! The cost of electricity is generally lower than fuel, leading to significant savings on fuel expenses.
From a tax perspective, electric vehicles offer even more incentives. In the UK, EVs are subject to lower Benefit-in-Kind (BiK) tax rates compared to traditional vehicles. BiK tax is applied when employees are provided with company cars for personal use. As of the 2024 tax year, fully electric vehicles are subject to a BiK rate of just 3%, compared to much higher rates for petrol or diesel cars. This can result in considerable savings for both the business and employees who use company cars.
Enhancing Corporate Sustainability
Switching to electric company cars sends a strong message about a company’s commitment to sustainability. As climate change becomes an increasingly pressing issue, businesses are under growing pressure from customers, investors, and regulatory bodies to reduce their environmental impact. EVs emit zero tailpipe emissions, helping to significantly reduce a company’s carbon footprint.
For businesses operating in urban areas, electric vehicles can also help meet local clean air regulations, such as the Ultra Low Emission Zone (ULEZ) in London, which imposes daily charges on non-compliant vehicles. By switching to electric cars, companies can avoid these additional costs.
Future-Proofing Your Fleet
Governments around the world are enacting policies that favour electric vehicles. In the UK, for example, the sale of new petrol and diesel cars will be banned from 2030. By transitioning to electric now, businesses can future-proof their fleets and avoid being left behind as fossil fuel vehicles are phased out.
The infrastructure for electric vehicles is improving rapidly. Public charging networks are expanding, and many businesses are now installing charging points at their premises, making it easier than ever for employees to switch to electric vehicles.
Salary Sacrifice: A Win-Win for Employers and Employees
One of the most appealing ways for businesses to encourage the switch to electric company cars is through EV salary sacrifice schemes. Under these schemes, employees agree to give up a portion of their pre-tax salary in exchange for leasing an electric vehicle, typically with the cost of the lease covering insurance, maintenance, and road tax.
The key advantage of salary sacrifice is that it allows employees to access electric vehicles at a lower cost than if they were to lease or buy one independently. Because the lease payments are taken from an employee’s gross salary, before income tax and National Insurance contributions are deducted, the overall cost of the car is effectively reduced.
Case Study: Salary Sacrifice
Let’s say John, an EV site Editor, earns £50,000 per year. His company offers a salary sacrifice scheme for electric vehicles, and he decides to opt in, choosing a new electric car with a lease cost of £500 per month.
Without the salary sacrifice scheme, John’s gross salary remains £50,000, and he pays income tax and National Insurance on that full amount. However, by sacrificing £500 per month (£6,000 annually), his gross salary is reduced to £44,000, meaning he pays less tax and National Insurance overall.
In this case, John saves approximately £2,000 per year due to the reduction in taxable income, making the electric vehicle a far more attractive option than a petrol or diesel alternative. For the company, the scheme reduces its National Insurance contributions by approximately £600 annually.
Employee Benefits Beyond Salary Sacrifice
In addition to the savings offered by salary sacrifice schemes, employees who switch to electric company cars can benefit from other perks. For example, EV drivers in the UK enjoy exemptions from congestion charges and road tax, as well as lower BiK rates, as mentioned earlier.
Many local authorities also offer free or reduced-cost parking for electric vehicles, adding to the convenience and cost savings for employees. These benefits, combined with the environmental feel-good factor of driving a zero-emission vehicle, can make switching to electric highly appealing for both businesses and employees.
John is the Editor and Spokesperson for Electric Car Guide.
With over 20 years of writing experience, he has written for titles such as City AM, FE News and NerdWallet.com, covering various automotive and personal finance topics.
John’s market commentary has been covered by the likes of The Express, The Independent, Yahoo Finance and The Evening Standard.
