Peter Vosper: Do you drive a vehicle for business?

As we read more about increased inflation, more government borrowing and the prospect of increased taxation at the next budget, there are some ways of cutting the cost of motoring if one has the benefit of driving a company car.

The government has used this method to increase the number of clean, non-polluting vehicles on our roads with the best allowances being available for BEVs (battery electric vehicles).

The latest move to provide a grant of up to £3,750 for electric vehicles with a retail price of less than £37,000 is open to all buyers but will also reduce the cash outlay for business buyers. BEV company vehicles also get 100% 1st year capital allowances, reducing the tax payable on profits.

The Benefit in Kind rate payable for company electric vehicles is 3% in 2025/26, rising by 1% per annum in 2026/27 and a further 1% in 2026/27. This is still much cheaper than internal combustion engine cars.

Another way of reducing costs if you use your car for business is to check if your company could benefit from a salary sacrifice scheme. This scheme allows employees to lease a car, often electric, through their employer, paying for it with pre-tax salary deductions. This reduces taxable income and can lead to significant tax changes, particularly for electric vehicles due to favourable benefit in kind rates.

The employer typically handles the lease and associated costs, like insurance and maintenance, and the employee makes fixed monthly payments. The one possible downside for the employee is the lack of flexibility should your circumstances change, and you want a different vehicle. In spite of this more companies are looking at this option.

Another choice is contract hire where you simply pay a rental for a fixed period and hand the vehicle back at the end of the term. This can be supplemented with a service package which means you have fixed running costs for the period. This system also has a lack of flexibility so should the business find it needs to downsize, or the vehicle becomes surplus to requirements the penalty payment for early termination can be high.

Many small businesses are unsure of the best way to go for their business and it is best to seek advice from a specialist dealership who has experience of dealing with companies of all sizes and following discussion can give the option of several solutions.

Short-term rental is an expensive option but gives the owner or operator flexibility if they are not confident of the longer term or are starting a new venture and need that flexibility.

Look out for a reduction in used electric car prices as the effect of the new electric grant may offer some strong savings.