Tax policy slows electric car sales, says Fleet Evolution

The Government’s ‘misguided’ company car tax policy is depressing sales of electric cars at a time when they should be starting to increase, says Fleet Evolution.

It believes electric vehicle (EV) sales would be higher but for “irrational” Government intervention over taxes.

With sales of diesel cars falling dramatically due to adverse publicity regarding emissions of harmful pollutants, a vacuum has been created in the new car market that EVs might be expected to fill, it says. However, uptake of alternative fuel vehicles (AFVs) is still at worryingly low levels.

So far this year, sales of AFVs have accounted for a market share of 5.5% or one in 20 new cars - a year-on-year increase, but still only a tiny minority in a new car market of some 2.5 million vehicles.

The main reason for that is a Government tax policy that will see EVs taxed at 16% for the next tax year before falling back to 2% in 2020/21, depending on their electric range, says Fleet Evolution. That confused message, allied to a high front end price, has combined to deter many would-be buyers, the company believes.

Fleet Evolution managing director, Andrew Leech, said that the Government was keen to persuade more drivers to select EVs as their next company car, especially as it had pledged to remove all new petrol and diesel cars by 2040. But its ‘confused and confusing’ benefit-in-kind tax policy was acting as a dampener on electric sales.

“Many of our customers’ drivers have told us that they would like to select an electric car as their next company vehicle,” he said. “But they have been put off by the confusing tax picture for the next three years, plus the front end premium and higher rentals associated with EVs.

“We believe the Government should take some positive action to incentivise EVs properly, at a time when they are trying to persuade us that electric power is the way to go in both the corporate and private new car markets.

“That means introducing the highly advantageous 2% BIK rate for EVs with the best range from the next tax year rather than waiting until 2020 for the initiative to take effect. For drivers choosing their car for the next three or four years, that is a huge missed opportunity and an obvious disincentive to choose electric.”

Leech said that the current BIK rate of 13% for EVs that fell into the bracket for 0-50g/km of CO2 was set to rise to 16% in 2019/20 – an increase that many experts can see no justification for. Under new rules, it is then set to fall to 2% in 2020/2021 for EVs with a pure electric mileage range of more than 130 miles.

He continued: “We welcome the 2% tax rate in 2020/21 as it is a measure that we expect to increase demand for electric cars under salary sacrifice schemes by 400%. But this will be too late for people ordering their next car now as the opportunity for lower taxes is then lost for three to four years.

“The question we have for Government is ‘why penalize EVs so harshly from a tax point of view this year and next, only to offer huge tax incentives a year later?’ It just makes no sense at all.”

Leech said that the Government’s tax measures were depressing sales of EVs in favour or petrol or diesel cars. “When you combine rising taxes with the comparatively high list price of electric cars, which is measured before the impact of any government grant for company car tax purposes, it doesn’t make financial sense to choose an electric car in 2018/19 rather than a petrol or diesel equivalent,” he explained.

However, the Government had it within its power at the Budget Statement this November to reverse its policy and give a boost to the electric car market, he said. “We would like to see the Government remove the contradiction of an aggressively escalating company car tax followed by a huge reduction in the tax rate, by introducing the 2% rate from the 2019 tax year and thus actively promoting the uptake of longer range EVs much sooner.”