Going green cuts the cost of business motoring

Incentives to switch to alternative fuel vehicles

In the face of post-Brexit uncertainty, motor dealers across Scotland are upbeat about their industry.

This was the message that came through in the recently published Motor Dealer Report 2016 from Henderson Loggie in conjunction with UK accountancy association MHA.

Retailers reported a growing trend in contract purchases, which are similar to leasing agreements but with the option to take ownership at the end.

These flexible deals allow businesses to claim back 50% of the VAT and to claim monthly rental costs as a tax expense.

If the business owns the car, none of the VAT is reclaimable and capital allowances can only be claimed at various rates.

Rates vary from 100% for low emission cars up to 75g/km, to only 8% of the cost of cars with emissions of 131g/km and over.

Of the motor dealers interviewed for the survey, 66% believe alternative fuel vehicles will gain significant market share within the next 10 years.

Improvements in battery technology and a wider range of cars, together with government support, could see businesses drive the switch to green motoring in the UK.

Take for example the cost of driving a five-door Nissan Leaf Visia valued at £27,535 compared to a Renault Clio 0.9TCE which has a P11d value of £13,440. By choosing the Nissan Leaf as a company car, a standard-rate tax payer will pay £385 in tax while those taxed at the higher rate of 40% will pay twice as much at £770.

A higher-rate tax payer driving the Renault Clio will pay £914 in tax for a car with less than half the value of the greener Leaf.

If we compare two cars of similar value, for example the electric Nissan Leaf Acenta fivedoor automatic at £30,825, and a Land Rover Discovery Sport at £33,850, the case for going green comes sharply into focus.

The cost to a higher-rate tax payer opting for the Land Rover Discovery will be £4,468 each year whereas the Nissan Leaf Acenta would cost the driver a relatively modest £864 in tax.

The best illustration of the savings to be made through green motoring is when we compare the same model of car, in this instance the Volvo XC90 R Design, one running on fossil fuel, the other the hybrid version. Although the hybrid is £13,300 more expensive to buy at £63,550, the driver will pay just £1,780 in tax.

If the driver had opted for the slightly cheaper AWD, where the higher carbon dioxide emissions mean car benefit in kind is taxed at 29% compared to 7% for the hybrid, he or she would pay £5,830, a difference of £4,050.

It is worth bearing in mind businesses have to pay Class 1A NIC on the benefit in kind cash equivalent, so a lower benefit in kind number means the NICable amount is lower too.

It appears that a combination of concern for the environment and a holistic approach to sustainable business practices will see growth in sales of alternative fuel vehicles predicted by motor retailers in the years ahead.