EV Fleet Finance: How To Fund Your Next Business Vehicle

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Trusted Fleet Managers Can Mitigate The Common Pitfalls With Financing Vehicles For Business

When your business is growing, it may be necessary to rethink how employees get from A-B and serve your customers better. Financing new vehicles in your company can be a complicated issue, but with a trusted provider fleet managers can avoid the common pitfalls.

Firstly, the business will have to decide if the purchase should be made outright with capital, or whether a finance method would be more suitable. Despite having the cash to make the purchase, having a depreciating asset on your books can be costly.

The most popular finance product for businesses is Contract Hire. Under this agreement, the business pays fixed monthly payments for the duration of the term, which are tax deductible. In addition, VAT-registered business can also reclaim some of the VAT, depending on whether the vehicle is used exclusively for work or also private use. If employees are given cars funded through the business, they will be liable for benefit-in-kind tax at varying rates depending on their tax code and the value (P11D) of the vehicle. This can range from under £100 per month for an electric or city car to several hundred per month for ICE executive saloons. 

calculator and financing of vehicles

Alternatively, businesses can use Lease Purchase, which requires a deposit, followed by fixed monthly payments and a final balloon payment if you’d like to keep the car. Most finance firms will require two years of company accounts with an accompanying accountant letter, and a credit check on the business and its directors. However, companies in their infancy still have options.

Employees could be issued a car allowance – which gives them the freedom to purchase a vehicle of their choosing through a wide-range of methods. Most new cars in the UK are purchased through PCP, or Personal Contract Purchase, where customers pay monthly installments against the depreciation of the car and interest. However, another option is Hire Purchase, which spreads the total cost of the vehicle over a set period of several years. Once the final payment is made, the car is theirs to keep – whereas PCP requires agreed mileage limits, a return standard policy or the option of paying a balloon payment, derived from the Guaranteed Minimum Future Value.

If a business chooses to provide employees with a car allowance, there are certain tax implications to be aware of. Firstly, the allocated car allowance is added to their salary. So, a £300 per month car allowance would increase the employee’s salary by £3,600 per year, increasing their tax liability and your employer national insurance bill. 

Employees who opt to receive a car allowance will be responsible for the maintenance and insurance of their vehicle, including work-related mileage. Insurance companies need to be notified of commuting and business travel, as this can increase the risk through carrying of goods or passengers. 

With employees armed with a car allowance, and an understanding of the benefits and implications, the question now turns to the vehicle choice. 

Alternative-fueled vehicles have grown increasingly popular over recent years. In 2018, battery electric vehicles (BEV) and plug-in hybrid vehicles (PHEV) sales in the UK reached 60,000, a new record – and the number of electric charging stations exceeded petrol stations for the first time. Further compounding the demand for environmentally-friendly alternatives is the proposed ban on diesel vehicles. 

Top Reason To Buy EVs For Fleets

plug in hybrid electric vehicle
Plug-In Hybrid Electric Vehicle (PHEV)

Electric cars (ULEVs) are fast becoming the preferred choice for fleets. Some of the reasons for their growing popularity are:

  • lower maintenance costs compared to internal combustion engines (ICE)
  • lower cost of running i.e. recharging an EV battery is significantly cheaper compared to filling a full tank of fuel (petrol or diesel)
  • lower pollution to zero pollution
  • better branding for the company with stronger environmental credentials

The Nissan Leaf and Renault Zoe are good examples of all-electric cars for EV Fleets. Cars like the Toyota Prius PHEV and Hyundai Ioniq PHEV are popular examples for plug-in hybrid vehicles for fleets.

For firms looking to build brand recognition, branded company vehicles offer the chance to promote the business whilst your employees cover thousands of miles a year. Cars which have a uniform look also present the company in a professional light, raising the profile for clients, prospective employees and the local community. 

Whether purchased through Contract Hire or as cash allowances, the fixed monthly cost allows for an off balance-sheet asset and makes cash flow budgeting easier, as depreciation and maintenance costs are the responsibility of the finance company or employee. 

Having a fleet, or car allowance perk, also means your team are commuting and travelling in the safety of newer vehicles – with the additional benefit of being less likely to break down, and therefore keeping your employees on the move with more certainty. 

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Ashvin Suri

Ashvin has been involved with the renewables, energy efficiency and infrastructure sectors since 2006. He is passionate about the transition to a low-carbon economy and electric transportation. Ashvin commenced his career in 1994, working with US investment banks in New York. Post his MBA from the London Business School (1996-1998), he continued to work in investment banking at Flemings (London) and JPMorgan (London). His roles included corporate finance advisory, M&A and capital raising. He has been involved across diverse industry sectors, to include engineering, aerospace, oil & gas, airports and automotive across Asia and Europe. In 2010, he co-founded a solar development platform, for large scale ground and roof solar projects to include the UK, Italy, Germany and France. He has also advised on various renewable energy (wind and solar) utility scale projects working with global institutional investors and independent power producers (IPP’s) in the renewable energy sector. He has also advised in key international markets like India, to include advising the TVS Group, a multi-billion dollar industrial and automotive group in India. Ashvin has also advised Indian Energy, an IPP backed by Guggenheim (a US$ 165 billion fund). He has also advised AMIH, a US$ 2 billion, Singapore based group. Ashvin has also worked in the real estate and infrastructure sector, to including working with the Matrix Group (a US$ 4 billion property group in the UK) to launch one of the first few institutional real estate funds for the Indian real estate market. The fund was successfully launched with significant institutional support from the UK/ European markets. He has also advised on water infrastructure, to include advising a Swedish clean technology company in the water sector. He is also a member of the Forbury Investment Network advisory committee. He has also been involved with a number of early stage ventures.

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