With the recent government push for the adoption of electric cars, you might have asked yourself the question…
‘Should I buy an electric car through my limited company?’
This is a valid question and definitely worth strong consideration.
As we move closer to the ban on the sale of new petrol and diesel cars by 2030, the tax benefits of going electric are no longer solely environmental, additional incentives are increasingly apparent.
Firstly, it is important to note that to reclaim the VAT on any car, it needs to be used exclusively for business. A usual commute between home and your workplace is considered by HMRC as personal rather than business travel. If you are going to use the car for a mix of both personal and business journeys then the applied VAT will be no different to buying it personally, which means you cannot claim any of it.
If you buy an electric car through your business part of the cost can be offset against your corporation tax bill and better than that, you can claim the full deduction in the year of purchase.
If you own the car personally, when making business journeys you can charge the company 45p per mile for the first 10,000 miles and 25p per mile thereafter. Current electric vehicles travel about 250 miles on a charge, though there are some, that can do about 350 miles on a charge.
To start with, if you really want to figure out the most cost-effective option to ownership, you must consider the following;
- The predicted business mileage
- Your tax bracket
- The list price of the car
- The year of registration
- The CO2 emissions
If you buy a car through your business which you also use for personal use, this will be classed as a ‘Benefit in Kind.’ This ‘BiK’ will be viewed as though the business has paid you additional income so you will need to pay income tax and national insurance as a result. You’ll also need to complete an additional filing called a P11D once a year.
From 6 April 2020, the ‘benefit in kind’ was 0%. However, this rose to 1% from 6 April 2021, and will again to 2% in 2022/2023.
The valuation of the benefit in kind depends on the list price of the car and its CO2 emissions. Manufacturer websites such as Tesla have benefit in kind calculators where you can figure out your Net monthly BiK based on your tax bracket and the model purchase price.
The Blue Rocket App contains a Vehicle Benefits section for Benefit in Kind calculations, along with many other useful tools such as a mileage tracker.
Download the Blue Rocket Accounting App for free in the Apple store or Google Play today.
Apple App Store: https://apple.co/3D6BaGc
Google Play Store: https://bit.ly/3D6B8hy
Additional Beneficial Savings
Vehicle excise duty (road tax) on electric vehicles is substantially cheaper than on other cars and free for the first year! *
Electric cars are also exempt from the London Congestion Charge.
In summary, there are some clear tax saving benefits of buying an electric company car but it is important to consider all aspects above before proceeding.
As car tax rates are only released a few years ahead at a time, we won’t know how long these benefits will be around for. This alone is a compelling reason to speak to your accountant in order to make an informed decision whether this switch to electric would be right for your personal and business needs, although we do advise you have that conversation sooner than later.
Need help on this subject?
Let's talk - email us at happytohelp@bluerocketaccounting.com or call 01322 555442
*It is worth noting that cars registered on or after 1st April 2017 and which cost over £40,000,are still liable to pay an additional road tax charge.
This article is intended for information purposes only and should not be relied upon as a substitute to professional advice.
