Is moving back to a company car on your business to-do list for 2021?
We’re pretty sure there’s a long list of things to be done, not least shoring up the balance sheet after the effects of the pandemic’s various lockdown measures.
But don’t leave out reconsidering a company car for the business, whether it’s you as an owner-driver director, or perhaps for members of your staff.
It’s now been virtually a year since the benefit in kind rules were changed regarding company cars. The changes introduced last April continue to penalise those drivers choosing less efficient cars - the so-called gas guzzlers - along with drivers in cars that were once considered low emission.
For many company directors and employees, these changes no doubt reinforced their decision to take cash over a company car, as high benefit in kind rates continued to support the op-out decisions.
Crucially, however, the benefit in kind rates for ultra low emission and zero emission electric cars (EVs) were changed drastically and with low company car taxation put in place for EVs for at least five years, now is the time to seriously reconsider opting back into a company car.
Rob Marshall, Operations Director of Gateway2Lease, offers this view:
“Many cash takers liked their company car but didn’t appreciate paying what they perceived as high levels of benefit in kind and that was why they opted-out from the company provided car. But I would urge those small business directors in particular to reconsider that decision in light of the new taxation rules for EVs.”
The realignment of benefit in kind rates has been substantial. For example, the driver of a Nissan Leaf EV was paying a BIK rate of 16% for the car in 2019/20; in April of 2020 that plummeted to 0%. And will only rise to 1% for the forthcoming 2021/22 tax year.
“With changes like that, we have started to see more business directors move back into an electric company car,” continues Rob. “It’s a trend we thought would happen and that trend is now beginning to accelerate as we head into 2021.”
We spoke to Shaun Sadlier , who is Head of Consulting at Arval, one of the panel of funders we use at Gateway2Lease.
Shaun told us that the leasing funder was seeing a similar trend across its fleet portfolio. He explains:
“In several of the major fleets with which we work we are seeing it happen,” says Shaun. “It’s a welcome development that will feed demand for zero-emission vehicles and lead to wider, faster adoption.
“If you talk to fleet managers and their drivers, there’s a lot of enthusiasm around the vehicles themselves. It’s as simple as many people really liking EVs as their day-to-day mode of transport. We are beyond the early adopter phase and heading into mass-acceptance.
“All it takes is a couple of EVs on a fleet to disprove the reservations some people hold about these vehicles. They can see that misgivings, such as range anxiety, are actually of limited importance for the vast number of journeys that are made.”
How does an EV work as a company car?
We’ve taken an example of a company director, paying tax at 40%, who is currently driving a BMW X3 xDrive30d xLine as an opt out. The car has a P11D value of £48,430. Workings are average monthly payments:
- Gross allowance (the amount required to personally lease a car on a personal contract hire agreement) - £625
- Net allowance (post tax and NIC) - £362
- Monthly BIK - £581
The sums in detail
- Rental £785.68
- Maintenance £107.81
- Insurance £50.00
- Monthly BIK tax saved -£581.16
- Monthly net cash allowance required for this car £362.32
The net cash allowance is what you’d need to ensure your monthly cost would be the same as the average monthly BIK tax over the term, if you took the BMW X3 as a company car. The calculations then add income tax and National Insurance Contributions to work out the gross cash allowance that an employer would need to pay for this car to be leased personally.
Now if we compare that opt-out car to a Tesla Model 3 Long Range AWD EV, which has a similar PL11D of £49,990, if it was supplied as a company car. Again these are averages over the three-year term:
- Employer pays £655
- Monthly BIK for the employee = £17
The sums in detail
- Rental £520.22
- Maintenance £67.34
- Business electricity £22.50
- Insurance £40.50
- Class 1A NIC £4.66
- Employer's full cost £655.21
, based on a 3+33 profile, 10,000 business miles a year, fully maintained with a 40% tax payer
As you can see, providing the EV as a company car would save the company director considerable money overall, both in tax and NIC by transferring to an EV company car. In addition it would free up the director’s personal credit lines as well.
“This is just one example of how an electric company car can save business directors money overall - along with improving local air quality - by opting back into the company car,” continues Rob Marshall.
“We would be happy to talk to business owners and directors about the changes they could make to their business by electing to choose a company car again.”
How to opt back in to an EV company car
To talk to the Gateway2Lease team about opting back into a company car programme, please call us on 01299 407 360 or contact your account manager. We would be delighted to hear from you to talk through your options.
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