Tax Breaks on Second-hand EVs: The Catalyst for a Greener UK

The UK Government's approach to promoting EV adoption through employee tax breaks reeks of laziness. It fails to address the pivotal issue of making this transition accessible to younger and less affluent segments of society.

The Government have taken the easy approach of leveraging established regulations concerning Employee Salary Sacrifice Schemes, offering significant tax reductions of 28% and 42% if employees choose to lease an Electric Vehicle (EV) through their business. The resultant effect is that the more you earn, the more you save, a system which could arguably be perceived as lacking in democratic fairness.

Additionally, regulations prohibiting salary sacrifices below the national minimum wage threshold inadvertently exclude younger, environmentally conscious employees earning less than £23,000 from participating in the scheme.

Historically, leasing companies have primarily focused on providing brand new Electric Vehicles (EVs). In conjunction with the generous tax savings, this has effectively tailored many Salary Sacrifice Schemes towards company directors, who are typically in the market for high-end EVs such as Porsche Cayenne Electric or the latest Tesla models. Consequently, lower-cost EVs like the Renault Zoe or Electric Mini are infrequently represented in their order books, with little being done to make EVs more affordable for the masses.

The Electric Car Organisation (eco) is lobbying the UK Government to follow the example of the USA and other European countries by making tax credits available to anybody buying or leasing an EV privately, as many employers cannot offer Salary Sacrifice Schemes because of weak balance sheets or profit records.

In a more radical proposal, eco recommends that these tax credits be exclusively available to those purchasing second-hand EVs. They suggest that the Government should offer tax credits amounting to £3,000 per second-hand EV, which double to £6,000 if the purchase is combined with the scrapping of a petrol car over 10 years old.

eco argue that this approach would offer four key benefits.

1. Enhancing the affordability of transitioning to EVs for younger and less affluent demographics. With running costs approximately 50% lower than older petrol vehicles, the shift to EVs contributes to environmental conservation and boosts discretionary spending.

2. Create a Healthy second-hand EV market. Creating a robust second-hand market can provide buyers and leasing companies with greater certainty over resale values, stimulating the sale of new EVs. The recent Tesla price reductions and uncertainty emanating from swiftly advancing battery technology have led to a significant drop in second-hand EV prices. This depreciation has dramatically increased lease prices and deterred potential buyers from investing in an EV at this juncture. The proposed taxcredits would enhance the value of second-hand EVs, alleviating this concern and indirectly promoting the sale of new EVs.

3. Avoid EV manufacture abuse. Initially, the UK Government provided a £3,000 subsidy for the purchase of a new EV. However, manufacturers correspondingly increased the prices of new vehicles by the same amount, effectively absorbing the subsidy. Consequently, this prevented the intended benefits from reaching consumers looking to transition to EVs. Directing this same subsidy to second-hand cars being brought from private owners would prevent this abuse and make the policy much more effective.

4. Making tax savings more cost-effective and equitable for everyone. All taxpayers would receive the same benefit by extending the Zero Tax bracket from £12,571 to £15,571 through tax credits. This adjustment would mitigate the present inequity, where higher-income earners save more by transitioning to an EV. It would also represent a significantly lower cost compared to the average £18,500 tax saving that higher income earners currently enjoy under the Salary Sacrifice Scheme.

eco asserts that their proposed tax credit structure would be straightforward to implement and yield a more immediate effect on the transition to EVs, compared to the currently intricate Salary Sacrifice Schemes initiated by the Government. 

However, to prevent further disruption and confusion in the EV sector, eco suggest these tax breaks be limited to consumers purchasing second-hand EVs where no current subsidies exist and that they should supplement, rather than replace, the existing Salary Sacrifice Schemes.

eco is against the London Ultra Low Emission Zones (ULEZ) expansion or the introduction of similar zones in other cities until the government takes measures to make second-hand EVs more affordable. The organisation argues that implementing these zones is unfair because they impose flat rate daily charges on businesses and individuals lacking the financial capability to transition to EVs.

They assert that while ULEZ zones could play a crucial role in driving future change, their implementation should be postponed until affordable second-hand EV options become widely available to all.

The future must be green, but a healthy second-hand EV market is a crucial catalyst for the UK's Green Revolution.