UK Budget 2024: New Tax Incentives Drive Shift to Electric Vehicle Fleets, Closing Company Car Loopholes and Supporting Sustainable Growth

UK Budget 2024: Shifting Towards Electric Vehicle Fleets

The UK Budget 2024 has set the stage for a major shift towards electric vehicle (EV) adoption by extending tax incentives for electric fleets and tightening policies for company car schemes. In the Autumn Statement, the government announced new measures aimed at supporting the electrification of transportation while addressing existing tax loopholes. The policies span across company car tax, vehicle excise duty (VED), fuel duty, and employer National Insurance Contributions (NICs). Below is a breakdown of each area and its implications for companies, fleet managers, and individual taxpayers.

Company Car Tax Revisions: Extended Visibility and Increased Rates

The Autumn Statement includes significant updates for company car tax, providing visibility up to 2030 and setting a framework for ongoing support for zero-emission vehicles. Here’s an overview of the key updates:

• Extended Incentives: Tax incentives for electric and plug-in hybrid vehicles are extended through 2030. These incentives have been instrumental in encouraging the transition to EVs, especially since 2020, with 29% of company car drivers now using zero-emission vehicles.

• Steep Increases for EVs: Starting April 2028, zero-emission vehicles will see a 2% annual increase in company car tax, ultimately reaching 7% in 2028/29 and 2029/30. Although this represents a substantial increase, it remains comparatively favorable for EV drivers versus internal combustion engine (ICE) and hybrid vehicle users.

• New Hybrid Tax Bands: For hybrid models, CO2 emissions between 1-50g/km will now fall under a single 18% tax band, ending the existing system that differentiates plug-in hybrids by electric range. This adjustment could lead to higher tax costs for long-range plug-in hybrids and potentially reduce demand in the company car sector.

Vehicle Excise Duty (VED): New Standardization Across Powertrains

Changes to VED reflect a shift towards equalizing tax rates for petrol, diesel, hybrid, and electric vehicles registered from April 2025. Here are the core aspects:

• Standard VED Rates: All vehicles registered since 2017 will pay a flat £195 annual VED rate starting in April 2025, eliminating discounts previously offered to hybrids and marking the first time EVs will be taxed under VED.

• Expensive Car Supplement: Cars priced over £40,000, including many popular EV models like the Tesla Model Y, will incur a £425 Expensive Car Supplement for the first five years of ownership.

• Frozen Rates for New EVs: Zero-emission cars will incur a £10 first-year VED rate, frozen until 2029/30, helping maintain a financial edge for EV adoption despite overall tax increases.

Employer NICs Adjustments and Impact on Salary Sacrifice Schemes

The budget introduces increases in employer National Insurance Contributions, indirectly impacting company car and salary sacrifice schemes, as follows:

• Increased NICs Rates: Employer NICs will rise from 13.8% to 15% starting April 2025. Class 1A NICs, which apply to workplace benefits, will also see this increase, impacting costs for providing benefits like company cars.

• Impact on Class 1A NICs: For a £40,000 hybrid company car, employers will face an additional £144 in NICs annually; for a similar EV, the increase is a more modest £16. This change could bolster the attractiveness of salary sacrifice schemes, where employees can lease vehicles at reduced tax rates.

Fuel Duty Freeze and EV Charging Costs: Mixed Reactions

In a somewhat unexpected move, the government has extended the fuel duty cut for another 12 months, freezing inflation-linked rises on fuel duty that have been in place since 2011. However, public charging costs remain a concern for EV drivers:

• Fuel Duty Extension: The freeze prevents a projected 7p/litre hike, a relief for many during challenging economic times. However, the absence of incentives to address the high cost of public EV charging, especially with the 20% VAT on public charge points, has drawn criticism.

• Disparity in Charging Costs: Drivers using public rapid charge points now pay rates equivalent to ICE vehicles averaging 30 mpg, making the transition to EVs less attractive for those without access to home charging.

Restoring the 2030 ICE Phase-Out Commitment

In line with the UK’s green transportation goals, the government has reaffirmed its commitment to phasing out internal combustion engine (ICE) vehicles by 2030, as per its pre-election manifesto.

• EV Support Beyond 2030: Company car tax rates for EVs will rise gradually, with rates for zero-emission vehicles increasing by 2% annually from 2028, reaching 7% by 2030.

• Focus on Fully Electric Vehicles: The Budget emphasizes EV support while reducing incentives for plug-in hybrids to encourage a shift towards zero-emission vehicles.

Investment in Charging Infrastructure and Plug-in Van Grants

The government has committed over £200 million to EV charge point infrastructure and extended the Plug-in Van Grant for another year, reinforcing its EV adoption strategy:

• Infrastructure Boost: The £200 million investment aims to expand public charging networks, focusing on on-street charging solutions in collaboration with local authorities. The current public EV infrastructure consists of 70,000 charging devices, with further growth planned.

• Plug-in Van Grant Continuation: A £120 million extension supports new electric vans and wheelchair-accessible EVs, a significant development for commercial fleets.

Mixed Industry Reactions: Calls for Increased Support

Industry reactions are varied, with both praise and criticism. Key stakeholders in the fleet and EV sector voiced opinions on the Budget:

• BVRLA and SMMT: The British Vehicle Rental and Leasing Association (BVRLA) welcomed the extension of company car tax benefits and Plug-in Van Grants but expressed concern over gaps in support for rental sectors, used EV markets, and charging infrastructure. The Society of Motor Manufacturers and Traders (SMMT) emphasized the need for further measures to bolster EV adoption, citing high targets and challenges in meeting them.

• ChargeUK and Konect: ChargeUK and Konect raised concerns over insufficient public funding for charging infrastructure. ChargeUK highlighted the need for clarity on funding to secure the private investment required for widespread EV adoption.

Green Industrial Strategy and the National Wealth Fund

The government is leveraging the Modern Industrial Strategy to drive growth in green sectors, supported by substantial funding through the National Wealth Fund:

• Automotive Sector Support: Over £2 billion will be invested over five years to enhance the production capacity of zero-emission vehicles. An additional £2 billion is allocated for green hydrogen projects in England, Scotland, and Wales.

• National Wealth Fund Investments: The government plans to capitalize on the National Wealth Fund to support industries such as gigafactories, green hydrogen, and essential infrastructure, reinforcing its commitment to sustainability and economic growth.