20 January 2020

Budget calls to scrap VAT on electric cars to boost sales

Calls have been made for Chancellor of the Exchequer Sajid Javid to scrap VAT on the sale of electric cars in the forthcoming Budget.

The demand comes from the AA, which also wants VAT to be scrapped on monthly lease rentals and the premium Vehicle Excise Duty (VED) rate, applied to vehicles with a list price in excess of £40,000, to be removed from electric vehicles to encourage uptake.

The motoring organisation says that as the £320 a year Vehicle Excise Duty supplement is only applied in years two to six of a vehicle’s life, the change would have a “positive impact” on the sale of used electric vehicles.

The Chancellor has announced that the Budget, delayed by Brexit negotiations and December’s general election, will now be held on Wednesday, March 11.

Last year registrations of battery electric cars totalled 37,850 units, 144% up on 2018 but still accounting for just a 1.6% share of total new model sales, according to data from the Society of Motor Manufacturers and Traders. Together with plug-in hybrid vehicle registrations, electric vehicles accounted for a combined near-73,000 units last year to take just a 3.1% share of the new car market.

Nevertheless, Go Ultra Low, the collaborative campaign group bringing together the Government, SMMT and motor manufacturers, said 2019 was the most successful year for electric car registrations to date. At the end of last year the number of 100% electric and plug-in hybrid cars registered in the UK was 271,524.

What’s more vehicle choice is set to further expand in 2020 as a further 23 zero emission cars and 11 plug-in hybrid models are set to make their showroom debuts including the Peugeot e-208, Volkswagen ID.3, Mercedes-Benz EQC, Vauxhall Corsa-e, Skoda CITIGO E, and Mini Electric.

AA president Edmund King said: “The UK car parc needs a shock to the system. Eight out of 10 drivers say improving air quality is important to them, but they are confused by current policies and as such many have stuck with older, more polluting cars.

“A combination of the climate change emergency and local councils setting up vastly different Clean Air Zones, means that many drivers feel under pressure to change but can’t no matter how much they try.

“With electric vehicles making up just 0.2% of the nation’s cars, there is a long way to go to meet the official target of at least half new car sales to be ultra-low emission by 2030. Our proposal would help to achieve that goal more quickly.”

He concluded: “Drivers want to amplify their wishes to go electric. We hope by plugging this idea the country will unite and deliver positive change.”

The AA’s calls follows a survey of more than 17,500 members of which 61% said removing VAT would help persuade them to buy an electric vehicles and 40% also said that VAT should be removed from lease rentals.

Meanwhile, with Parliamentary time taken up over the last year by Brexit debates resulting in the expected autumn Budget not being held it meant that no Finance Bill was published. It was expected to include draft legislating outlining company car benefit-in-kind tax rates for the three financial years starting 2020/21 which were announced last summer.

As a result, with little more than two months before they are due to be implemented on April 6, the fleet industry is hoping that the Finance Bill following the spring Budget will quickly introduce them into law.

ACFO chairman Caroline Sandall said: “Not only is it urgent, given it is only a few weeks before the start of the new financial year, that the Budget confirms that they will be introduced into the Finance Bill unchanged and thus become effective as fleet operators and company car drivers expect from April 6, but the Chancellor must also announce rates for at least the following two years.

“Company car replacement cycles are typically four years with some extending into a fifth year. It is imperative that fleet operators and drivers know what the tax burden will be throughout the lifetime of a vehicle on fleet to enable long-term planning.

“Consequently, ACFO would expect the Chancellor to announce company car benefit-in-kind tax rates for at least 2023/24 and 2024/25 in the Budget.”