How a new electric car could save you money

If you’re thinking of trading in your car this year, you’ll undoubtedly be thinking of electric as an option for your new vehicle.

Sales of electric cars may have started off slowly, but Irish people are coming around to the idea of plugging in their car before they make a trip. Figures from Eurostat show there were 26,220 cars in Ireland driven on "alternative energy" in April 2018, or about 1 per cent of the total stock.

This might seem small, but in Spain the proportion is just 0.1 per cent of the total stock.

Of course, there are Government incentives behind this uptick in electric car ownership, measures which can diminish the costs of going electric – for now, at least. So if you’re tempted to join this growing number of electric car owners, it might be time to do the sums.

North or south: Which side of Dublin is cheaper to live in?

---

Housing costs: How Dublin compares with other global cities

---

The five financial mistakes to avoid in your 30s

---

How much are electric cars?

First up, cost. A major downside of electric cars is that they are undoubtedly more expensive than their diesel/petrol equivalents.

"The cars are so expensive because the technology is so new," says Paddy Comyn, head of group communications with Volkswagen in Ireland, adding that a "huge proportion" of the cost of an electric car is the battery. But as technology advances, costs should come down.

A Nissan Leaf starts at €33,690 for example (before savings from Government incentives are deducted), while the much larger Mazda6, which runs on petrol, starts at €31,945.

Electric cars have been criticised in the past for their poor range, but the technology has moved on, and a number of The Irish Times's cars of the year for 2019 2018 are electric models, including the overall winner, the Jaguar I-Pace. Others included the Audi e-tron, the Nissan Leaf, BMW's i3, the Toyota Prius, and Tesla's Model S.

You can also buy an electric car in the second-hand market, but the technology on older models can be significantly different to that of the newer versions.

A 2015 Nissan Leaf, for example, with 50km on the clock is advertised at €14,995 on Carzone, while a 2017 Hyundai Ioniq is about €21,495.

What about grants?

You can, however, cut the cost of purchasing a new car by availing of a grant on a new vehicle. The Sustainable Energy Authority of Ireland (SEAI) offers a grant of up to €5,000 on the purchase of an electric vehicle (either a battery electric vehicle or plugin hybrid electric vehicle). The size of the grant depends on the value of the car, and starts at €2,000 for a car with a list price of €14,000-€15,000, rising to €5,000 on cars worth €20,000 or more.

Given the cost of electric vehicles, most buyers will most likely fall into the second category. However, according to a spokeswoman for the SEAI, if your employer is buying the car for you, the top grant available is €3,800.

Such cars are also subject to vehicle registration tax (VRT). Plugin hybrids can get a rebate of up to €2,500, while VRT of up to €5,000 can be paid back on fully electric cars, so you’re typically looking at a Government incentive of about €10,000 on an electric car.

The grants and VRT rebate effectively work as a rebate against the cost of the car, as the dealer will sell you the car for the reduced price, and apply for the cashback themselves.

So the prices you see advertised are typically inclusive of these reductions; the e-Golf, for example, has a list price of €45,995, but the price you’ll typically see advertised is €35,995, after Government incentives are included.

How about BIK relief?

There is a way you can cut the costs of owning an electric car even further. First introduced back in October 2017, there is an exemption on benefit in kind (BIK) from electric cars. Be warned, however – this doesn’t include hybrids and it is currently due to last only until the end of December 2021.

A cap of €50,000 now applies to the relief. That means that, provided your employer buys you a car in this bracket, you will qualify for the full relief. The aforementioned Nissan Leaf, BMW i3 and Toyota Prius will all qualify for full BIK relief.

The 0 per cent rate is beneficial both for employees and employers. It means the employee can avoid tax, and the employer won't have to pay employer's PRSI of 10.95 per cent on the vehicle. For Daryl Hanberry, a tax partner with Deloitte, the new regime is a "game changer", considering how expensive it can be to provide a company car to an individual.

“This will be a game changer for individuals, particularly those who work in urban areas,” he says, adding that he expects many employers, especially those in more urban areas, to start installing charging facilities at their premises.

When the scheme was originally introduced, Hanberry says that interest was muted. “There was a level of uncertainty as to how long the scheme would last,” he says, something which may have inhibited a greater take-up. Now, however, he’s already had conversations this year with companies that are looking into the scheme.

“It’s a way for employers to give you more; employers are always looking at ways of providing benefits that are tax free,” he says.

Indeed, Comyn says that sales of its e-Golf are now split 70:30 in favour of fleet over private. He says that, previously, the split would have been about 80:20 the other way.

So how does it work?

Typically, if your employer offers you a company car, you will be subject to BIK on it. This works by calculating 30 per cent of the original market value of the car and applying tax to this, with a reduction for business travel in excess of 24,000km. So, for example, a car worth €30,000 will cost an employee €2,000 a year in tax for lower-rate payers, and cost €5,200 for those on the higher rate.

“Doing significant mileage does reduce the percentage of tax quite significantly,” says Hanberry. However, if you’re a low enough mileage driver, you can now avoid all such tax by opting for an electric car.

This equates to immediate savings of about €7,800 a year for a higher-rate taxpayer (or about half the value of the car over three years), based on a purchase price of €50,000.

And it’s important to remember that you’re not constrained by the €50,000 cap – you’ll just have to pay tax on any excess. “Any amount of the OMV (original market value) over €50,000 is taxable in the normal manner,” Revenue says.

If, for example, your employer is offering you an Audi e-tron (€101,750) or a Tesla, you will still benefit from the BIK relief. On the e-tron, for example, you will be subject to BIK on a market value of €51,750, so that’s tax of about €8,073 a year for a higher-rate taxpayer – still significantly less than the €15,873 you would have paid under the normal BIK regime.

One important point to note. As mentioned, most dealers offer cars after the grants/rebate have been deducted; however, from Revenue’s perspective, BIK relief works on the “original market value”.

For example, a BMW i3 may cost a buyer €35,760 off the forecourt but, for the purposes of BIK, it is regarded as a €45,750 car. Should you add more than €4,250 of optional extras to the car, the price will exceed the cap and BIK will start to apply.

How about a car allowance?

Many employers have moved away from offering company cars in recent years in favour of car allowances. But be careful – an entitlement to such an allowance doesn’t mean that you will be able to benefit from the BIK relief, as your employer has to buy you a car in order to qualify for the relief.

Revenue treatment of such allowances is that they are “pay”, which means they are subject to tax, PRSI and USC. If your employer offers you an allowance of €400 a month, you will pay tax on this, which reduces the benefit to €192 if you pay tax at the higher rate, or €320 if you pay at the standard rate.

If, however, your employer is willing to buy you a company car instead, and it’s within the cap, you won’t have to give up any tax.

And the Revenue says salary sacrifice – which can arise when you swap a taxable benefit directly for a non-taxable benefit and isn’t something the Revenue generally likes to see – won’t be an issue here.

“It would not constitute a salary sacrifice where an employer provides an employee with a company car instead of a car allowance,” a spokesman says.

But I bought in 2018?

The good news is that if you bought in 2018, the €50,000 cap won’t apply, following an Amendment in the Finance Bill, 2018. So, if you bought a Tesla for €100,000 last year, you will continue to benefit from tax savings of about €20,400 a year.

If you’re only buying this car now, you’ll have a tax bill; although, at about €12,600, it’s still significantly less than it would have been without the relief.

Costs of running an electric car

While it’s likely to change imminently, you can currently run an electric car largely for free (well, apart from maintenance), thanks to the network of free charging stations that have sprung up.

Obviously you have to be near one to make this work, but there are currently more than 1,000 public charge points available across Ireland, with a further 70 fast chargers available which can charge your car to 80 per cent capacity in as little as 25 minutes.

You can apply to ESB ecars for an access card which gives you free charging at the points.

You can also get a charging point installed at home, and there is a grant available to help defray the costs. A charging point currently costs about €149 with Electric Ireland, after the grant of €600 from the SEAI is deducted. Bear in mind that, according to the SEAI, the grant does not apply if you get a company car.

While you will have to pay for the electricity through this point, it should be a lot cheaper than the petrol or diesel alternative. According to ecars, it will cost someone driving 200km a week just €2.54 to charge their car using their at-home charger at night; this compares with €21.60 for a petrol car, and €15.74 for a diesel.

Moreover, employees with company cars can also avoid BIK on the cost of fuel for their electric vehicles, by charging them through a company-owned charge point.

Motor tax is also cheaper on an electric car, at just €120 a year, compared with a rate of between €199 and €1,809 for a standard car, while toll operators are also running an incentive for electric cars until end-2022. This gives discounts on the cost of a toll for both fully electric and hybrid cars – up to 75 per cent for electric cars on the M50 and 50 per cent on other roads.

In addition, you should expect to save on your servicing. According to Comyn, it costs about one-third less to service an e-Golf than a standard car, because there are “fewer moving parts” such as spark plugs, oil filter etc.