Electric vehicles (EVs) are rapidly gaining popularity across various industries, and construction businesses are no exception. While you might be familiar with the environmental benefits of electric vehicles, it’s crucial to understand the financial and tax benefits they offer. In this article, we’ll break down how investing in electric vehicles can help your construction company save money through various tax incentives and operational cost reductions. Let’s dive into why going electric makes sense for your fleet!
100% first year allowance (FYA) for new electric vehicles
One of the biggest financial benefits for construction businesses investing in electric vehicles is the 100% first year allowance (FYA). If you purchase a brand-new electric vehicle or a vehicle with zero emissions, you can deduct 100% of the vehicle’s cost from your profits before tax in the first year.
This makes purchasing electric vehicles more attractive, as it provides an immediate reduction in your tax liability. It’s particularly beneficial for businesses looking to offset high initial costs and free up cash flow.
Plug-in van grant: Up to £5,000 in savings
The UK Government’s plug-in van grant is another financial incentive aimed at encouraging construction companies to adopt electric vans. This grant covers up to 35% of the purchase price of a new electric van, up to a maximum of £5,000.
This grant significantly reduces the upfront cost of an electric van, making it a more accessible option for construction businesses looking to upgrade their fleet. The grant applies to a wide range of electric vans, from small models to large vehicles suitable for transporting heavy equipment.
Lower company car tax (BIK) rates: 2% until April 2025
If your construction business provides company vehicles for employees, switching to electric vehicles can result in huge savings on Benefit in Kind (BIK) taxes. The BIK rate for electric vehicles is currently set at 2%, and this rate is fixed until April 2025.
This is a big advantage for businesses that offer company cars to staff, as traditional petrol or diesel vehicles can have BIK rates as high as 30%. By switching to electric vehicles, you can reduce tax liabilities and attract or retain employees with lower-tax company cars.
Savings on fuel and maintenance costs
Electric vehicles are much more efficient and cheaper to run compared to traditional internal combustion engine vehicles. Electricity is cheaper than diesel or petrol, and with fewer moving parts, EVs require less maintenance.
Construction businesses often operate large fleets of vehicles, and the cost savings from reduced fuel consumption and maintenance costs can quickly add up. Switching to electric vehicles not only cuts operational costs but also reduces downtime caused by frequent repairs.
Vehicle excise duty (VED) exemption
Electric vehicles are exempt from vehicle excise duty (VED), commonly referred to as road tax. For businesses that own multiple vehicles, this exemption can lead to significant savings over time.
Traditional petrol or diesel vehicles are subject to increasing VED rates based on emissions, so transitioning your fleet to electric vehicles can save thousands of pounds annually in road tax.
Clean air zone discounts and exemptions
Many UK cities are implementing Clean Air Zones (CAZ), where vehicles are charged for entering city centres if they don’t meet certain emission standards. Electric vehicles are exempt from these charges, which can be as high as £12.50 per day.
If your construction business frequently operates in urban areas, switching to electric vehicles can save you from accumulating high daily charges. Additionally, by using EVs, you’ll be able to market your company as environmentally responsible.
18% capital allowances for hybrid vehicles
While fully electric vehicles offer the best tax benefits, it’s worth noting that hybrid vehicles can also provide advantages. For businesses that aren’t ready to fully commit to electric, hybrid vehicles qualify for 18% capital allowances.
This allowance enables you to deduct 18% of the vehicle’s cost from your taxable profits each year, which is still a considerable saving compared to standard petrol or diesel vehicles.
Long-term savings with electric fleet adoption
The upfront cost of electric vehicles can be higher than traditional vehicles, but long-term savings make them an attractive option. When you factor in reduced fuel costs, lower maintenance expenses, and tax incentives, an electric vehicle fleet can save your business money over time.
It might take a few years to fully recoup the initial investment, but once your savings on operational costs and tax liabilities kick in, electric vehicles prove to be a financially smart choice for construction businesses.
Environmental benefits and public perception
Beyond financial benefits, switching to electric vehicles enhances your company’s image. Many clients are increasingly focused on sustainability, and running a fleet of electric vehicles positions your construction business as environmentally responsible.
Construction businesses using electric vehicles can showcase their commitment to reducing their carbon footprint, which can help win more eco-conscious contracts and improve relationships with stakeholders and the public.
Grants and incentives: A summary
Let’s recap the key grants and tax incentives available for construction businesses investing in electric vehicles:
- 100% first year allowance for new and unused electric vehicles
- Plug-in van grant: Up to £5,000 off the purchase price
- 2% BIK rate, fixed until April 2025
- VED exemptions for electric vehicles
- Clean air zone discounts in major UK cities
- 18% capital allowances for hybrid vehicles
By taking advantage of these incentives, construction companies can not only reduce their operational costs but also make a positive impact on the environment.
Conclusion
For construction businesses, investing in electric vehicles offers more than just environmental benefits. The financial incentives, tax savings, and reduced running costs can make a significant difference to your company’s bottom line. Whether you’re looking to upgrade your fleet, lower tax liabilities, or position your business as a leader in sustainability, electric vehicles are a powerful option to consider.
Now’s the time to explore the grants and tax benefits available and make an informed decision that benefits your business in the long run.
Table: Quick comparison of electric and hybrid vehicle benefits
Benefit | Electric Vehicles | Hybrid Vehicles |
Capital Allowances | 100% FYA (new vehicles) | 18% annually |
Plug-in Grant | Up to £5,000 | Not available |
BIK Rate | 2% until April 2025 | Higher than electric |
VED Exemption | Yes | No |
Clean Air Zone Exemptions | Yes | No |
This listicle-style article can help construction businesses see the immediate and long-term advantages of switching to electric vehicles, from tax savings to enhanced public perception. Whether you are just starting to explore EVs or are ready to make the shift, this guide provides the essential information needed to make a cost-effective decision for your fleet.