Should you buy an electric car through your business?
The company car was long seen as a staple part of any senior employee’s remuneration package and for an employee to receive the use of a new car with no upfront payment and manageable monthly tax deductions from their payslips it was usually very well received.
But as a business owner yourself, is a company car a tax efficient way of receiving the benefits of your hard work? Below are some quick questions that you should consider before buying a car.
Are electric cars worth it?
From a tax perspective, yes. The business tax reliefs for buying a new electric car are significantly better than for petrol or diesel cars. For you as an individual you will also pay a much lower amount of personal tax. This amount of personal tax is calculated by adding to your taxable income a % of the list price of the car. The % used depends on the emissions of the car but for fully electric cars it is currently 2%, the average non-electric car would see a charge of 29-30%!
What are the tax breaks for the business owner for getting a company car?
Companies cannot reclaim any VAT on the purchase of a car but it can take a deduction against their profits for Corporation Tax purposes. The rate of deduction depends on the CO2 emissions of the car in question, if the car is fully electric you can deduct 100% of the cost in the year you buy it but if not you can only claim an increasingly smaller proportion. With a car emitting over 50g/km it would take upwards of 50 years at current rates to reclaim the full cost!
Does it make a difference if I lease the car rather than buying it outright?
The main difference here, other than the obvious cashflow benefits, is that you will be able to recover 50% of the VAT charged on the lease but you will only be able to take a deduction for Corporation Tax purposes of the amount of the lease in that particular year. There is no change to any tax you might pay as an individual.
What about running costs/insurance/fuel etc?
As the car is owned by the company, all the running costs can be paid for by the company and any associated VAT reclaimed. Regarding fuel, if the car is fully electric then there is no additional tax charge for the company paying for the full cost of the electricity and there may even be grants available for installing electric charging points. For petrol or diesel cars then there will be additional tax charges on you personally if the company pays for the fuel.
This all sounds like a lot of hassle, can’t I just buy it myself and take the money out of the company?
You certainly can! You will pay dividend tax on the money withdrawn from the company and the company will not receive any tax relief but you will be able to recharge your business mileage to the company.
If you have further questions or want to discuss specific issues then please contact your Client Manager.