For years we have been told that company cars are a bad idea. They come with huge tax charges for the individual, and there are no tax benefits to the employer. However, there is finally a chink of light in this otherwise tax heavy legislation – Electric Cars! So, should you be buying an electric car through your limited company? Read on to find out!
In an effort to make the country greener, the government are giving some great incentives on investments in electric cars. So why would you buy an electric car through your company?
Tax Savings on Purchase of Electric Car
Purchase – The company can claim 100% of the cost of the car as a tax deduction. By claiming this the taxable profit for the year by the full cost of the vehicle in the year of purchase.
Lease – The company can claim all of the costs as an expense, as they are incurred. By claiming these the result of this is that it reduces the corporation tax for the year.
If your company is VAT registered, and the
- car is 100% for business (i.e not available at all for personal use) – can reclaim all of the VAT on either a purchase or a lease
- car is available for personal use – no VAT reclaim on purchase, 50% of the VAT on a lease
If the electric car is provided to a director or an individual, and it is available for private use, then you must complete a P11d annually. For the year ended 5 April 2022, the value of the car for P11d purposes will be 1% of the cost price. This will rise to 2% for the year ended 5 April 2023.
Example, let’s assume the car is £50,000.
For the year ended 5 April 2022, the tax would be based on £50,000 x 1% = £500
The company will pay Class IA NIC on this at 13.8%, which is £69
The individual will be taxed on the £500 as employment income. The rate that will be paid will depend on the individuals other income.
The fees for preparing P11d’s start at £200 + VAT
If you have a company vehicle all the costs of having the vehicle can be claimed through the company – this includes insurance, tax, repairs, services.
While you cannot obviously claim fuel on any electric car, you can claim 4p per mile for each business mile travelled, as a reimbursement of electricity used. A mileage log must be kept to support these claims.
Grants Available for Charging Point
There are grants available for installing a proper charging point in your home, details can be found https://www.gov.uk/government/collections/government-grants-for-low-emission-vehicles
Ready to Purchase an Electric Car Through Your Limited Company?
There are a few things to watch out for
- The electric car must be purchased / leased in the company name – it cannot be in your name individually
- The insurance must be in the name of the company and include business use
- When you sell the car there may be a tax charge to pay as you would have received a 100% tax write off in year 1
- We only have the P11d rates up to 5 April 2023 available at the moment, we don’t know what will happen after thi
If you would like to discuss this in more detail, you can book a consultation with Wendy through the website https://zebraaccountants.com/expat-tax-consultations/