Can I buy an electric company car?
We have noticed many of our clients asking about the tax benefits of buying an electric car. Certainly the more choice in cars and also the prices have made buying an electric car a much more realistic proposition for many clients. The main reason for this is the low benefit in kind charge that electric cars currently attract.
Can I buy an electric car?
The benefit in kind tax is an extra tax that you will pay on assets or services that are given to you by your employer that have a monetary value. One of the most popular ones are a car or paying for private healthcare or a gym.
Because the benefit in kind tax is so low at the moment on electric cars it can make it attractive for owners of companies to make them available for their employees. The benefit in kind rate for pure electric cars are significantly lower than they are for petrol and diesel cars.
Depending on how you buy the car there may also be other expenses that you can claim as a business expense such as maintenance and repairs.
Purchase a car
If you purchase an electric car in your company it becomes an asset of the company. It is something that the company owns and it is part of the accounts and balance sheet. But as with most things when you buy them you pay vat on the purchase price.
Paying VAT on a car with the value £35000 upwards can be very expensive, but this is made worse when you buy a car for your company you will not be able to claim the vat back unless you can show that it is used only for business purposes.
HMRC will automatically assume personal use unless it can be proven otherwise. That may be through the insurance documents only covering business use or the location that the car is registered and kept at overnight. This is usually not enough and your claim will normally be disallowed.
It will only be allowed if you can show it is to be used in some of the following business
A Taxi
For driving tuition
For self drive hire
When you purchase an electric car as well you are able to claim capital allowances on the cost of the car. There are a few rates depending on the CO2 emissions for plug-in hybrids but for a battery electric vehicle the cost will be 100% of the purchase price. That is if you buy a car for £35,000, your company profits will be deducted by £35,000 before tax is charged..
Lease a car
Leasing a car is a very effective way to be able to drive a new car without the cash outlay of buying a car. This gives you the right to use and enjoy the car as if it were your own and to drive it when and where you like. It is a good way to finance a car and not get into a huge amount of debt. You will be paying a monthly lease fee to the lessor to be able to use the car.
The advantages to the company are obvious that the cash is not tied up in a car asset and more cash stays in the business.
There are also advantages in the way that vat is dealt with for a lease car compared to one that is purchased. When you lease a car you can reclaim 50% of the vat on the lease payments that you pay to the lessor. There is no requirement as above to show that there is no private use; the company is allowed 50% as a reduction to account for any business use.
From a corporation tax perspective the lease payments that you make for a car will also be allowed as an expense in the company accounts and tax calculations.
Running costs of a car
The running costs of a car are also something that needs to be accounted for and included in the company accounts. This may be the costs of repairs, maintenance and costs of tyres. If this is a company car this can be included in the company accounts. This should be paid for and included in the motor vehicle expenses for the company.
The fuel expenses for the car will be easier to account for by using the HMRC fuel advisory rates. For an electric car the fuel advisory rates are currently 5p per mile. That means that for every mile that you drive in your car you are able to claim 5p to cover the costs of recharging the car either at home or by any public charging points.
If you are going to claim a fuel mileage allowance you will also need to keep a record of the miles that you have traveled for work and to keep a record of the reason for the travel. For instance, are you claiming mileage for going to a meeting with your client?
Benefits in Kind
Benefits in kind are the taxes that are paid when your employer makes a car, asset or services available for you. The amount of benefit in kind that you pay for a car is made by reference to the CO2 emissions of the car. This gives a value as a percentage of the car's new list price. If the percentage applied to a car is 25%, the value added as a benefit in kind is 25% of the car list price. If the car is valued at £35,000. £8750 will be added to your income and you will pay tax at your marginal rate of tax on this. This is 20% for a basic rate tax payer, 40% for a higher rate tax payer and 45% at the additional rate of tax.
Currently the benefit in kind value applied to a car is 1% of the list price and it will be 2% for the 2022/23 tax year. For a car with a value of £35,000, £350 will be added to your income for the current tax year and £700 will be added for the 2022/23 tax year that you will pay tax on at your current tax rates.
Obviously the amount of tax that you have to pay as an employee will be far less currently than a petrol or diesel car and this along with the extra reliefs given for vat and corporation tax are making electric cars very attractive to employers at the moment.
Next Steps
If you need help in deciding if electric cars may be suitable for you or your employees please schedule a call to discuss how we may help you.