Britannic Place Financial Management Limited

Can buying an electric car actually save you money while protecting the world?

If you’re a passionate eco-warrior, you might be considering switching from a petrol or diesel engine to an electric car.

Electric cars have never been more popular, with most major brands now offering some sort of electric model.

According to advocacy site Nextgreencar.com, there are now 260,000 fully electric cars on UK roads. There are also a further 535,000 plug-in models, including plug-in hybrids (PHEVs).

However, there are question marks over how cost-effective electric cars are for your pocket. While tax benefits and government grants can reduce the cost, high prices can mean it isn’t as affordable as you may think.

So, just how cost-effective is buying an electric car?

Electric cars are more expensive to buy

Prices range wildly for electric cars, with cheaper models such as the Nissan Leaf thrown into the same bag as a top-of-the-range Tesla.

As a result, according to data from insurance company NimbleFins, the average price in the UK is around £44,000 for a brand-new electric car.

Of course, the petrol and diesel car market is far broader, encompassing smaller, cheaper-built cars. This means averages are far more varied, especially depending on the size of the vehicle.

For these cars, NimbleFins estimates that: small cars will cost you between £12,000 – £17,000; a medium-sized car will cost between £22,0000 – £36,000; and an SUV averages at somewhere between £23,000 – £28,000.

While it obviously depends on which car you buy, an electric car will likely cost you more on average.

Second-hand electric cars are initially more expensive to run

According to Ian Plummer, the commercial director of the vehicle search site Auto Trader, second-hand electric cars under three years old (or up to the first 30,000 miles) work out to be more expensive than their petrol or diesel equivalents when the total costs of ownership are taken into account.

This is because of factors such as missing out on the £2,500 government plug-in grant, or because they no longer benefit from manufacturer incentives that you might receive when you buy new.

This means that a second-hand electric car under one year old could cost you up to £7,000 more than a petrol or diesel car; £6,000 more after one year; and £4,000 more after two years.

On the other hand, by the time the car is three years old, you could see savings of up to £1,000, rising to £2,000 by the time the car is five years old.

Aside from that tricky middle section between one and two years, that means a second-hand electric car can still be cost-effective.

Fuel costs versus electricity costs

The cheaper cost of electricity against fossil fuels can save you money with an electric car, too.

According to the RAC Foundation, the average cost to fill up a Ford Focus with a 55-litre (12.1 gallon) tank is £74.34 for petrol and £75.09 for diesel, as of 5 August when data was last available.

Typically, the Focus is supposed to achieve somewhere between 34 and 55 miles per gallon (mpg), depending on the model. On average, this would give you 44.5mpg, offering more than 500 miles a tank.

Remarkably, a study from Euro Car Parts even found the Focus capable of travelling up to 1,112 miles off a single tank.

Meanwhile, electricity costs vary depending on where you charge your car.

According to EDF Energy, the Pod Point rapid chargers available in supermarket car parks cost 23p/kWh at Lidl and 24p/kWh at Tesco. That works out at around £6 to £7 for 30 minutes of charging, giving you roughly 100 miles of range.

Home charging has the potential to be even cheaper, depending on how much you charge your car there and what you pay for your energy tariff.

Compared to 500 miles from the Focus at over £70 per tank, an electric car could travel 500 miles for between £30 and £35 using those supermarket prices. This would make the cost of running an electric car considerably cheaper.

Of course, 1,000 miles would run you between £60 and £70, making the costs comparable if you did manage to squeeze the absolute maximum out of a Ford Focus on every journey.

Electric cars are exempt from road tax

Another way that electric cars can save you money is through their exemption from road tax.

As of the 2021/22 tax year, the annual flat rate of road tax is £155.

However, there’s an additional “first year rate” when you buy a car that depends on the amount of CO2 the car produces. This is only charged in the first year you own the car and can range from £0 for cars that produce no CO2, up to £2,245 for cars that produce over 225g of CO2/km.

There’s also a “premium car tax” rate if your car costs more than £40,000, charging £335 a year for the first five years of ownership.

Electric cars are entirely exempt from these charges, meaning you could save nearly £4,000 in the first five years of owning an expensive electric car.

Bear in mind that you must still “tax” an electric car on the gov.uk website, even though there is no associated charge.

A company electric car could save you in “benefit in kind” tax

There are favourable tax rates when choosing an electric company car through your workplace that could save you money. This is because of exemptions and cost reductions to the way benefit in kind (BiK) tax works for electric vehicles.

BiK is a tax applied to company benefits you receive from your employer outside of your salary, such as cars, accommodation, or potentially even loans.

Your rate of BiK is determined by a range of factors, including the kind of benefit you receive, the value of it, and also your marginal rate of Income Tax.

In April 2020, the government entirely removed BiK tax from electric company cars for the 2020/21 tax year.

They also confirmed that the rates would rise in the 2021/22 and 2022/23 tax years, setting them at 1% and 2% respectively.

This could be a tax saving of up to 13% in the 2021/22 tax year, and up to 12% in the 2022/23 tax year, compared with the costs of owning a car that produces at least 1g of CO2/km.

Adding it all up

Overall, the cost of an electric car against a petrol or diesel car will depend on too many factors to definitively say that one is more expensive than the other.

How you buy your car, how old it is, how much you pay, and your personal tax rates will have a great bearing on the overall costs.

As much as you may want to reduce your environmental impact, you need to make sure that it’s a viable option for you financially before making a purchase.

Speak to us

If you’d like to know whether an electric car is the right fiscal decision for you, please speak to us at Britannic Place.

Email [email protected] or call 01905 419890 to find out more about how we could help you.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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