Electric Van Finance — Tax Perks Every Business Should Know

Why This Guide Matters

Switching your business fleet to electric vans isn’t just an environmental choice—it could be a strategic financial move. As the UK government intensifies its push for greener transport, significant tax incentives are now available to support businesses adopting electric vehicles (EVs). Yet, many decision-makers remain unaware of the full scope of these advantages. This guide demystifies the tax perks associated with electric van finance, clarifies the financial impact, and positions your business to capitalise on all available benefits. Whether you’re a sole trader or manage a large fleet, understanding these incentives can boost your bottom line while futureproofing your operations.

The Basics Explained

Electric van finance enables businesses to acquire electric vehicles (EVs) without paying the full purchase price upfront. This can be done through hire purchase, finance lease, or contract hire agreements. But beyond spreading the cost, these finance products unlock a suite of tax benefits unique to electric vans:

• First Year Allowances (FYA): Businesses can claim 100% capital allowances on new, unused electric vans in the first year, reducing taxable profits and resulting in substantial savings.

• Benefit-in-Kind (BIK) Tax: Electric vans attract a 0% BIK rate until April 2025, meaning employees can drive company-owned electric vans for personal use with no BIK tax liability.

• Vehicle Excise Duty (VED): New electric vans are exempt from VED (road tax) until at least April 2025.

• Reduced National Insurance Contributions: Lower BIK rates mean lower employer NICs for employees using electric vans.

These incentives, combined with lower running costs and maintenance, make electric van finance a compelling proposition. Understanding each benefit is crucial for maximising your financial position.

How It Affects You

The tax landscape for business vehicles is evolving rapidly. For businesses considering electric van finance, the implications are significant:

• Immediate Tax Relief: Claiming 100% capital allowances in the first year can sharply reduce your corporation tax bill, freeing up capital for other investments.

• No BIK for Employees: Traditionally, staff using company vehicles for personal journeys faced Benefit-in-Kind charges, adding to their tax burden. With electric vans, that charge is zero—at least until April 2025—making them a valuable perk for your team.

• Exemption from VED: The exemption from Vehicle Excise Duty removes another annual cost, improving the total cost of ownership calculation.

• Futureproofing Against ULEZ: As more UK cities adopt Ultra Low Emission Zones (ULEZ), electric vans avoid daily charges and potential fines, insulating your business from future regulatory costs.

• Lower Employer NICs: Reduced BIK also means less to pay in Employer’s National Insurance contributions.

For businesses with large fleets, these tax and operational savings add up quickly. Even for SMEs or sole traders, the combination of incentives and long-term running cost reductions can be transformative.

Our Approach

At Kandoo, we approach electric van finance by focusing on both immediate and future savings. Our process is built on a detailed understanding of how each finance product interacts with tax incentives and your business’s unique needs:

1. Tailored Finance Options: We compare hire purchase, finance lease, and contract hire to find the structure that best aligns with your cash flow and tax strategy.

2. Incentive Maximisation: Our advisors stay up-to-date with government policy, ensuring you claim all available allowances—such as the full First Year Allowance—on qualifying vehicles.

3. Cost Transparency: We provide clear breakdowns of your monthly and total payments, including how tax reliefs impact these figures over time.

4. Total Cost of Ownership Analysis: Factoring in lower maintenance, fuel savings, and potential grants, we help you see the true cost advantage of electric vans over diesel or petrol equivalents.

5. Regulatory Guidance: We explain how ULEZ and future emissions regulations could affect your fleet, helping you avoid compliance costs and disruption.

Quote:

“It’s not just about the van—it’s about the numbers behind the wheel. Understanding finance and tax can turn electric vans into a powerful business asset.”

By coupling deep market knowledge with practical advice, Kandoo ensures your transition to electric vans is as smooth and financially rewarding as possible.

Before You Decide

Before entering into an electric van finance agreement, consider these key points:

• Eligibility: Ensure the van qualifies as ‘new and unused’ to access the First Year Allowance.

• Intended Use: Will the van be used personally by employees? If so, the 0% BIK is particularly relevant.

• Fleet Size: Larger fleets mean greater savings, but even single vans can deliver meaningful tax benefits.

• Grant Availability: Look into the government’s Plug-in Van Grant, which further reduces the purchase price of eligible vehicles.

• Future-proofing: Consider the typical mileage, charging infrastructure in your area, and your business’s long-term growth plans.

It’s also wise to consult with your accountant or a qualified tax advisor to ensure you’re claiming all benefits and structuring the finance agreement correctly.

What’s Real, What’s Hype

Electric van finance is surrounded by optimism—and some exaggeration. Here’s the reality:

• Real: Tax incentives like First Year Allowances, BIK exemption, and VED savings are government-backed and genuinely reduce costs.

• Hype: Some providers may overstate fuel savings or underestimate the impact of limited charging infrastructure. Be wary of overly optimistic claims about maintenance or resale values.

• Real: Electric vans are increasingly practical, but suitability depends on your specific business needs, routes, and charging capacity.

Stay grounded in facts, and assess each claim through the lens of your operating model.

Pros & Cons

While the advantages are clear, businesses must weigh them against practical considerations like charging access, usage patterns, and model availability.

Other Options to Consider

If electric vans don’t align with your immediate needs, there are alternatives that may still offer savings or operational benefits:

• Hybrid Vans: These offer reduced emissions and some tax advantages, though not as extensive as pure electric models.

• Diesel or Petrol Vans: While traditional, they may still suit certain routes or industries where charging is impractical.

• Salary Sacrifice Schemes: Allow employees to lease electric vans through a salary exchange, benefiting from lower tax and NI contributions.

• Outright Purchase: For businesses with strong cash reserves, buying outright may simplify accounting and avoid finance charges.

• Short-Term Leasing: Ideal for businesses with fluctuating needs or those wanting to trial electric vans before committing.

Each option has its own benefits and trade-offs. It’s worth reviewing the full spectrum before making a long-term commitment.

FAQs

Q: Do all electric vans qualify for the First Year Allowance?
A: Only new and unused electric vans are eligible. Used or previously registered vans do not qualify for the 100% capital allowance.

Q: How long will the BIK exemption last?
A: The 0% Benefit-in-Kind rate is currently set until April 2025. After this, rates may rise—stay updated with HMRC announcements.

Q: Are there grants available for electric van purchases?
A: Yes, the government’s Plug-in Van Grant offers up to £2,500 off the cost of qualifying small vans and £5,000 for large vans, subject to availability and vehicle eligibility.

Q: What happens if I sell the van early?
A: Disposing of the van may trigger a ‘balancing charge’ which could affect your capital allowances. This should be discussed with your accountant.

Q: Can I finance a used electric van?
A: Yes, but used vans won’t qualify for the First Year Allowance or the Plug-in Van Grant. Other finance and tax benefits may still apply.

Q: Is it possible to claim allowances if my business is loss-making?
A: You can carry forward unused allowances, but immediate tax relief may be limited if you have no taxable profits in the current year.

Next Steps

• Review your current fleet costs and tax position

• Consult with a specialist finance broker, like Kandoo, to explore tailored electric van finance options

• Speak with your accountant about capital allowances and BIK implications

• Research eligible electric van models and check for available grants

• Assess charging infrastructure and operational suitability

Making the switch could be the most cost-effective move your business makes this year.