There are many compelling reasons for you to do so:

• The obvious one is to be more environmentally friendly.
• You will probably get a good trade in value for your old car.
• There are plenty of options available from a standard run-a-round like a Nissan Leaf or a top of the range Porsche Taycan. Nought to 60 in 4 seconds, but prices start at a whopping £85K (no floor mats included in this version).
• Less running costs (although the initial purchase price will be higher). No more visits to the petrol station – which for me also cuts down on my chocolate consumption.
• You can be smug when down the pub with your mates, saying how much you are saving in petrol, how quiet your car is etc.

If buying a car through a limited company, then in many cases it is worthwhile, but the tax rules can be quite complex, which we will explore below.

Corporation tax relief

In addition to the above reasons, you may choose to buy an EV to benefit from the corporation tax relief through a limited company.

You may have heard the phrase “your company gets 100% tax relief on the purchase price”. Car salespeople in particular will push this line, but what does this actually mean?

For example, say you are a fan of the entrepreneurial megalomaniac Elon Musk and decide to plump for a Tesla at £42,000.

What 100% tax relief doesn’t mean is £42,000 off your company tax bill (otherwise it would be free…. I think I will buy ten then).

What it does mean is that you can claim 100% Capital Allowances, which means your taxable profit reduces by £42,000 in the year of purchase and therefore reduces your tax liability by £7,980 at the current 19% corporation tax rate. Still a significant saving in our opinion.

Obviously the higher the purchase price means a higher tax saving. We are not advising to immediately rush out and buy a Porsche Taycan or BMW I7 (the company still has to finance it) but it does demonstrate the sizeable tax savings to be made if you are already considering purchasing a new company vehicle.

A major advantage which is often overlooked – the company is buying the car using the company’s money – i.e., you don’t have to withdraw the money from the company (which you are taxed on) to then buy the car personally.

On a side note the date of buying is important (there may be waiting lists for the car you want). For example, if your company year-end was 31^st October and you bought the car before this date you would receive the tax relief on your tax bill due in July 2023. If you bought in November, then it would fall into the accounting year October 2023 and the tax relief not until July 2024.

One final point – you may have heard of the super deduction where companies get 130% tax relief on the purchase price. Does this apply to electric cars? Short answer – no I’m afraid.

Should I buy or should I lease?

Reminds me of The Clash song, however I won’t go off topic. The capital allowance savings only apply to new vehicles purchased either outright or via hire purchase.

However, you may prefer to lease the car (a smaller deposit, convenient maintenance and you just give the car back at the end of the lease). You will still receive corporation tax savings, but not the 100% reduction of your profits of the full price.

Instead, this will spread evenly across the length of the lease. Leasing costs are treated as an expense in the profit and loss, reducing the profit by the monthly lease costs and therefore the corporation tax liability.

Which is better? This is a difficult one – we reckon the tax relief will roughly equalise out over the life of the car but buying outright or on HP you get the tax relief quicker. Simples.

What if it is not a new car?

If you are not that “bovvered” about rolling out the garage with zero miles on the clock – it may be more prudent buying a second-hand EV. There is more and more of a market – you should still have plenty of choice.

However, don’t worry you still get tax relief – but it is spread over the period of ownership a bit like the lease.

For example, on the Tesla in the year of purchase you only get 18% capital allowances instead of 100%.

Purchase price £42,000 x 18% capital allowances x 19% tax relief so you only get £1,436 tax relief.

In year 2 you get £42,000 less 18% x 18% x 19% = £1,177 and so on until you sell the car.

Can I claim the VAT?

Yes, that would be nice wouldn’t it.

When an electric car is bought outright or via hire purchase, it is notoriously difficult to justify reclaiming the VAT – which will be a sizeable amount. There must be absolutely no personal use – i.e., parked at the office, or in the yard overnight. Not even popping to Tesco for a pint of milk is allowed. Our advice is – don’t do it unless you have a water-tight case.

However, when leasing an electric car (even with personal use), 50% of the VAT on the lease payments can be reclaimed. If you have taken additional options on the lease – for example a maintenance contract – you can claim 100% VAT on that part of the monthly payment.

Who said tax was simple.

 What additional expenses can I claim?

As the company owns the vehicle, then you can reclaim all expenses that relate to that vehicle – insurance, repairs, tyres etc and claim the VAT if applicable.

Once you get your home or office charger installed you can happily top up the tank while you work or sleep. Energy bills now soaring? (Although charging at off peak shouldn’t make too much of a difference). Good news you can personally make a mileage claim to the company. Bad news – it is only 5p a mile (compared to 45p a mile if it was your own gas guzzling petrol car).

How do I finance the car – is there any grants available?

You can get a grant for installing a home charger. A £350 OLEV grant – but this is very restrictive and only available to rented premises.

There is a further £300 grant from the Energy Savings Trust, but again very restrictive – it is literally a postcode lottery.

If you don’t qualify for the grant, then it is not a deal breaker.

More importantly there is an interest free loan of up £30,000 available from the Energy Savings Trust, which can save a lot of money compared to buying through traditional hire purchase. Small thing to note the loan only covers the basic model of the car, so if you like your add-ons and gadgets then you would need to fund these yourself.

What are the disadvantages?

So far it all sounds too good to be true, however there are couple of down sides.

If there is any personal usage (and let’s face it – there is likely to be) a benefit-in-kind will arise, giving way to tax and national insurance implications for the you and the company.

Currently, the benefit in kind for an electric car is 2% on the vehicle list price for the 2022/23 tax year (and this is fixed up until 2025).

In practical terms, the benefit in kind on a £42,000 electric car is £840, resulting in a £115 annual national insurance liability for the company and £170 tax liability for you (which is usually added on to your personal tax bill) if they you are a basic rate taxpayer. This is a small cost to pay to use the business’ electric car personally when considering the corporation tax savings.

What is not often publicised, but it is a crucial point – when you trade the car in (whether you like to get a new set of wheels every year, or wait until the finance is paid off) – then you need to pay tax back on the value of the car when traded in. Yes, you heard that correctly – pay the tax back!

For example, if the car was worth £20,000 then that would trigger a £3,800 tax bill. However, it is a bit like ever decreasing circles, you are likely to be buying a new car at that point and the tax relief on the new car would more than offset the tax pay back.

Summary

Ultimately, there are several tax advantages to buying an electric car through a limited company, and with help available in the form of an interest-free loan and the benefit to the environment, now is a good time to go electric.

If you would like further advice on the tax benefits, please contact us.

The small print – tax rates etc are correct at the time of publishing (they may change tomorrow…). Please always consult your tax adviser (which is probably us). We are not sponsored by Porsche, BMW or Tesla (but we would like to be).

 

Authors – Donald Gilmour and Chris Waring