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EV funding matrix

What’s the best way to fund your electric cars and vans?

As with any fleet, there are several different ways to fund plug-in hybrid and electric vehicles. However, with varying financing and tax incentives, there’s a lot to consider before deciding which leasing option is best for your business.

The Volkswagen Financial Services I Fleet EV Funding Matrix helps you make the right decision. It outlines all the electric vehicle leasing options available and provides a list of pros and cons, so you can clearly see the difference between each one.

Once you’re aware of the relative advantages and disadvantages of each leasing option, you can make a better-informed decision and find the right funding choice for your electric cars and vans.

Your funding options

Contract hire lease

What’s involved?

The arrangement

  • The electric vehicle is hired for a predetermined mileage and period of time.

The contract

  • Service and maintenance can be included within the contract.

The finance

  • An initial rental is followed by equal monthly payments for the remainder of the contract term. At the end of the term the vehicle is returned to the leasing company.
  • End-of-contract charges may apply if the mileage exceeds what was specified in the contract, or if there is additional damage beyond fair wear and tear.
  • Uniquely within the leasing industry, Volkswagen Financial Services | Fleet allows you to include the installation costs of an EV charging point at the driver’s home, net of available grants, within the monthly payment.

 

Pros for electric and plug-in hybrid vehicles

  1. Electric cars and vans are relatively new to the second-hand market so residual values are uncertain. With contract hire, the leasing company bears the risk.

  2. If service and maintenance are included within the contract, they can be performed at franchised dealers by technicians with the latest EV servicing and maintenance knowledge and training.

  3. When the provision of the home charging point has been included in the lease cost from Volkswagen Financial Services | Fleet, there are no benefit-in-kind or Class 1A National Insurance Liabilities.

  4. Electric and plug-in hybrid electric vehicles are not subject to the 85% lease rental restriction.

Cons for electric and plug-in hybrid vehicles

  1. End-of-contract charges can be significant. (Volkswagen Financial Services | Fleet waives damage costs of up to £100 and acts in accordance with the BVRLA Fair Wear & Tear Guide.)

  2. There are charges for early termination.

 

Salary Sacrifice

What’s involved?

The arrangement

  • The electric car or van is made available to a company employee in return for a reduction in salary. The employee would generally not be eligible for a company car.

The finance

  • The employee saves the tax and National Insurance on the amount of salary sacrificed, but pays benefit-in-kind tax on either the vehicle or the amount of salary sacrificed, whichever is greater.
  • The employer saves the National Insurance and pension contribution on the salary sacrificed.

 

Pros for electric and plug-in hybrid vehicles

  1. The employee drives a new car that is fully insured, maintained and has breakdown cover.

  2. You can specify the choice of vehicles available, which can be aligned with your CSR objectives.

  3. For vehicles with CO2 emissions less than 75g/km, the benefit-in-kind tax is paid on the vehicle, even if the tax on the salary forgone would be greater. All currently available electric and almost all plug-in hybrids enjoy this benefit.

  4. For 2020/21 tax year, the benefit-in-kind tax rate for electric vehicles falls to 0%, making this a significant benefit. For example, a typical 20% taxpayer choosing an EV with a P11D value of £30,000 would save £1,680 in tax year 2020/21 compared with choosing a same-priced petrol model with CO2 emissions of 120g/km. A similar plug-in hybrid electric vehicle with CO2 emissions up to 50g/km, and up to 29 miles range in zero emissions mode, would save them £840.

Cons for electric and plug-in hybrid vehicles

  1. Because salary sacrifice reduces gross pay it can affect an employee’s pension.

  2. The scheme is unavailable to any employee whose salary would be reduced below minimum wage following the sacrifice.

  3. A reduced salary could affect the employee’s access to credit such as loans or mortgages.

 

Finance Lease

What’s involved?

The arrangement

  • The electric vehicle is hired for a predetermined period.

The contract

  • Service and maintenance can be included within the contract. There are no end-of-contract mileage or damage charges.
  • The balloon payment required at the end of the contract can be set to suit the lessor’s cash flow requirements.

The finance

  • An initial rental is paid, followed by equal monthly payments for the remainder of the contract term. At the end of the term the vehicle is sold, with the proceeds used to settle the residual value (balloon payment).

 

Pros for electric and plug-in hybrid vehicles

  1. Ideal for businesses such as delivery companies, whose vehicle journey patterns and distances are difficult to predict.

  2. If service and maintenance are included within the contract, they can be performed at franchised dealers by technicians with the latest EV servicing and maintenance knowledge and training.

  3. Electric and plug-in hybrid electric vehicles are not subject to the 85% lease rental restriction.

  4. If no balloon payment is set (making this a fully amortised finance lease) there is the opportunity to retain the vehicle at the end of the contract for a small ‘peppercorn’ rent.

 

Cons for electric and plug-in hybrid vehicles

  1. Electric vehicles are relatively new to the second-hand market so residual values are uncertain. With finance leasing the lessee bears the risk.