The Commercial Vehicles market is on the precipice of some the most substantial changes the industry has witnessed. Businesses are now entering into the initial stages of adapting their commercial fleets to alternative fuels, in support of zero emission goals. From the types of vehicle fleets available, to the total cost of ownership, the sector must anticipate the changes ahead to adapt to new standards that will soon become a marker of success in the industry. Sales Manager, Scott Barnett, commented:

‘Through our valued LCV partners we are already funding electric vans on both Hire Purchase and Finance Lease. Previously we have seen an increasing demand from larger fleets and we are now seeing much smaller fleets consider the electric options where the requirement fits the infrastructure. We are constantly reviewing the market and the options available so we can remain a funding option for end users looking to shift to alternate fuels.’

 

What environmental targets have been put in place?

In 2030, a ban on production of wholly petrol and diesel vehicles will be enforced [1], with hybrid vehicles due to be phased out shortly after in 2035 [2]. Beyond this, only electric, hydrogen or alternative fuelled vehicles will be permitted. As we approach this point in time, plenty is being done to support this initiative. OEM environmental targets set by the European Union seek to significantly lower emissions and there are CSR/ESG mandates being set by corporations in support of climate change efforts. The introduction of clean air zones will also play a large role in changing the industry infrastructure. Clean air zones are already present in cities such as Bath and Birmingham and are steadily being rolled out across the country.

What EV options are available on the market?

There are multiple manufacturers producing Electric LCV’s within the market today, available in a range of sizes. In order to assess the right type of vehicle for your business, it will be important to evaluate charging speed and payload. The market currently offers a choice between battery electric vehicles (BEV) or plugin hybrid electric vehicles (PHEV). There are benefits to both. BEV’s are often more affordable to run, however, PHEV’s are not reliant on charging infrastructure [3]; which currently is awaiting mass development throughout the UK. A further alternative is HEV (Hydrogen Electric Vehicles) and HFCV’s (Hydrogen Fuel Cell Vehicles), which are currently being trialled in Germany. The key advantage to these vehicles is their fast energising/charging time. The downside resides in the difficulties that are faced in storing hydrogen. The infrastructure will be a challenge to overcome, comparable with the electric charging infrastructure we have in place today.

What is the total cost of ownership?

The benefits of purchasing an EV fleet are already beginning to far outweigh that of their non environmentally friendly alternatives. Petrol and diesel fleets will now be met with high maintenance fees, cost of fuel, and congestion zone charges as time goes on. Any diesel vehicle registered prior to 2010 will also incur diesel tax moving forwards. In contrast, a 130% tax super deduction has been introduced to support the acquisition of Electric Vehicles [4]. Leasing can further support a reduction in total cost of ownership.  When the cost of any vehicle can be spread over a fixed period it enables return on investments to be clearly identified, and investments are not restricted by affordability at the time of purchase. 

How can BNP Paribas Leasing Solutions help?

It’s clear that now is the time to start implementing changes to meet outlined targets set by the government. Communicating with stakeholders, calculating the total cost of ownership and maintenance, as well installing the necessary charging infrastructure are all essential factors to consider ahead of 2030. BNP Paribas Leasing Solutions has been committed to the Commercial Vehicles sector for more than 40 years, supporting customers to make the right long-term decisions for their business by utilising the benefits of asset finance.

[1] https://www.bbc.com/news/science-environment-54981425  BBC, November 2022, Ban on new petrol and diesel cars in UK from 2030 under PM’s green plan

[2] https://www.cnet.com/roadshow/news/uk-gas-hybrid-car-engine-ban-electric-vehicle-2035/#:~:text=UK%20will%20ban%20new%20gasoline%20and%20hybrid%20cars,government%20accelerates%20its%20ban%20from%202040%20to%202035. CNET, February 2020, UK will ban new gasoline and hybrid cars by 2035

[3] https://www.buyacar.co.uk/cars/economical-cars/green-cars/1867/phev-vs-bev-should-i-get-a-plug-in-hybrid-or-electric-car  Buy A Car, February 2022, PHEV vs BEV: should I get a plug-in hybrid or electric car?

[4] https://www.bvrla.co.uk/guidance/tax-vat/130-super-deduction-for-capital-expenditure.html BVRLA, 130% Super Deduction for Capital Expenditure

BNP Paribas Leasing Solutions are not authorised to provide tax advice. Buyers should consult an accountant in order to understand the tax consequences of any investment decision. 

The Commercial Vehicles market has been met with a variety of challenges throughout 2022 so far. Ongoing supply chain problems, post-pandemic blues, the Ukrainian war and a cost-of-living crisis are all factors that have continued to cause a detrimental impact. This impact has led to eight consecutive months of commercial vehicle registration decline from January to August. September, however, bucked this trend and marked the first growth in registrations for the LCV market this year.

As we look forward to 2023, SMMT Chief Executive, Mike Hawes had this to say,

The UK’s van market continues to be shackled by supply shortages amid difficult operating conditions, which will likely continue into 2023, easing over the course of the year. Demand for zero emission vans remains robust despite these challenges, but a successful net zero transition will require measures targeted at long-term operator confidence.”

Our Commercial Vehicles Sales Manager, Scott Barnett, shared his experience of the current market climate, 

I have spoken to many businesses linked to the commercial vehicle market towards the end of last year, and their main concern going into 2022 was stock. Some even expected stock to be an issue into 2024 and it looks as though they will be right. Due to product supply some fleets and small businesses have been required to run their vehicles for a longer than originally anticipated as they await confirmation of product availability. 2022 has continued to see further increases in the price of vehicles , and the cost of borrowing. This is applying greater pressure to the market and there is no doubt that these uncertainties are damaging demand in the short term.”

For the remainder of 2022 LCV registrations are expected to fall by -13.7% on the 2021 total. There is a however expected to be a rise of 53.1% in the BEV (Battery Electric Vehicle) share of the market in comparison to last year’s figures. Mike Hawes, SMMT’s chief executive commented, “In these circumstances, the continued growth in electric van uptake is admirable as the industry strives to deliver its Net Zero commitments.”

Looking ahead to 2023

2023 holds a more positive outlook. LCV registrations are expected to be around 357,000 units, rising by 16.4% on the 2022 outlook. There is also no sign of the demand for electric vehicles slowing down. LCV BEV volumes are expected to rise 68.8% on the 2022 view and take a 9.2% market share. It is likely that going forwards this will encourage a greater charging infrastructure roll out.
Scott Barnett commented,

We have seen a real shift in the market towards the greener commercial options and larger fleets continue to lead the way with commitments to reduce their carbon footprint. We have seen a number of new BEVs and the Commercial Vehicle show, hosted at NEC Birmingham, had the UKs first fully electric pick up.”

Despite the many ongoing global factors impacting the market, improvements are on the horizon for both Electric and non-electric vehicles in 2023. To combat supply chain problems in the meantime, it is crucial to place orders well ahead of the delivery date required to manage any delays.

[Source: Mike Hawes, Chief Executive SMMT, ssmt.co.uk]

[Source: https://www.smmt.co.uk/2022/08/july-lcv-market-down-despite-increasing-demand-for-electric-vehicles/ ]

For customers with a tax year ending on 31st March, the time to review capital equipment expenditure for the current financial year is now. This will include most sole traders and individuals trading within a partnership. There is, however, a need to act fast. There are two generous capital allowance schemes available under a hire purchase agreement. In order to qualify, any equipment concerned must be on site and available for use within the financial year in which the allowance is claimed.

For those businesses in the final quarter of their financial year, the two allowances referred to above enable the full capital allowance of a newly acquired asset to be offset against tax in this financial year. The added benefit is that, under a hire purchase agreement, payment for the equipment concerned can be spread over a number of future years. The two schemes are:

Annual Investment Allowance

A capital allowance equating to 100% of the cost price of a qualifying asset can be claimed against tax in the year of acquisition. This allowance has a cap of £1,000,000 for the calendar year 2022. It is available on new and used equipment and can be claimed against both income and corporation tax. This means that all business trading styles can benefit from the scheme.

Super-Deduction

A capital allowance equating to 130% of the cost price of a qualifying asset can be claimed against tax in the year of acquisition. You read it correctly! This scheme allows a business to claim a tax allowance on a sum that is 30% more than the actual cost of the asset. By any standard, this is one of the most generous tax allowances ever introduced.

Whilst there is no cap on the amount of expenditure allowed under this scheme during 2022, the allowance can only be claimed against corporation tax. This means it is not available to sole-traders and partnerships. Unlike the annual investment allowance, super-deduction is available for new equipment only. It is also worth pointing out that it cannot be claimed in cases where assets are purchased for onward hire.

Cars cannot be included for either allowance, but commercial vehicles, plant and machinery all qualify, subject to the conditions described above.

Many businesses have a financial year ending March 2022, and this can act as a powerful and immediate incentive to bring forward capital expenditure to reduce any current tax liability. To benefit from these allowances before the end of their financial year, a business needs to ensure that any qualifying equipment, acquired by way of a hire purchase agreement, is ordered and delivered during the current quarter.

A hire purchase agreement allows businesses to acquire the equipment they need now and get the full benefits of the generous capital allowances currently available, without the need for a large cash outlay. In other words, businesses can get the tax allowances in their current financial year but spread the cost of purchase over a number of future years. A further point to note is that the interest element on a hire purchase agreement can also be offset against tax as a business expense. This means that for companies expecting to see an increase in corporation tax from 19% to 25% from April 2023, the real cost of any hire purchase agreement signed this year will reduce from that date.

In conclusion, and providing stock is available, there are many businesses that have a strong financial incentive to bring forward the acquisition of capital equipment. This means they will be able to retain cash for investment elsewhere. Capital allowances claimed now, on equipment subject to hire purchase agreements, provide the perfect solution.

Disclaimer
BNP Paribas Leasing Solutions is not authorised to provide tax advice. You should consult an accountant in order to understand the tax consequences of any investment decision.

In a world where the virus itself is talked about less and less we seem to be feeling the knock-on effects more and more. The LCV market challenges around stock continue, with no end in sight for the issues caused by the shortage of semiconductors and other key raw materials.

The motor market continues to feel the effect of uncertain and limited supply – the car market experienced its weakest September since 1998, whilst the LCV market met its lowest September figures since the recession of 2009. The sector was down nearly 42% when compared to the pre-pandemic average.

It should be noted that these figures are on the back of a record August for the sector in what is usually the quietest month of the year. There is no doubt that the difficulties will not be over for some time and some experts predict as late as Q4 2022 as a best case.

Chief Executive of the SMMT commented,

September was a disappointing month for new van registrations, as the much-documented semiconductor shortage has started to impact supply. Manufacturers are doing all they can to fulfil orders and, after a strong year so far, demand still remains high. With businesses continuing to renew their fleets, there is a greater choice than ever of new zero emission models coming to market, helping ensure the commercial vehicle sector plays its part in decarbonising road transport.

[Source: Mike Hawes, Chief Executive SMMT, ssmt.co.uk]

Aligned to the stock shortage is the requirement to reduce emissions within the sector. We are seeing the momentum for Electric Vans building, proven by the dominance of non-ICE vehicles at this year’s Commercial Vehicle Show. The current penetration of electric vehicles is 1 in 38 vans registered in 2021 being fully electric (1 in 12 cars). This will increase as the supply chain improves. The proposed Clean Air Zones planned for some of the UK’s major cities will accelerate the move towards electric, but challenges still remain around the infrastructure to support the movement to this cleaner energy source.