If you’ve seen our earlier blog on buying cars through your business, our answer is usually NO!
However, new rules for electric cars came into force in April 2020, making buying an electric car through your business far more attractive!
So to understand the current rules around cars and your business, have a read of our blog should I buy a car through my limited company.
If you’re thinking about buying or leasing a van, check out our blog Should I buy or lease a van?
1. What are the new rules?
From 6 April 2020 if vehicles have zero CO2 emissions, the tax situation is very appealling. So if it’s a purely electric vehicle, the CO2 emissions will be zero.
2. How does this affect me personally?
If you’re an employee with a fully electric vehicle provided by your employer, your benefit in kind (BIK) tax from 6 April 2020 was £0. Yes seriously!
This is because the BIK percentage was 0%. This is huge as it can be up to 16% of the list price of the car.
For 2021/2022 the BIK rate goes up to 1%, and then for 2022/2023 to 2024/2025 it goes up to 2%.
But still very low!
3. How does this affect my business?
Business tax* :
For fully electric vehicles you can usually use the full cost of the electric car to reduce your business tax.
This means that if you buy a fully electric vehicle for £20,000, your profits should reduce by £20,000.
The business tax savings could be as much as:
- £3,400 for limited companies.
- £5,800 for sole traders and partnerships.
If you provide a vehicle to your employee (or you, if it’s your own company) then you have to pay national insurance on the BIK value of the vehicle.
From 2022 to 2025 the BIK is only 2%, which is very low.
The national insurance on BIK’s is usually 13.8%, so this could be quite a saving.
This is very general advice – contact us for specific calculations for you.
4. What about Super Deductions and electric cars?
- Super deduction allowances provide an additional 30% of the cost of the asset against your profits, before working out your corporation tax.
- Electric cars are not eligible for super deductions.
- Find out more about super deductions in our blog.
5. Will the benefit in kind rate change?
The benefit in kind for electric vehicles started at 0% in April 2020, and started to increase:
- 1% from 6 April 2021
- 2% from 6 April 2022 to April 2025
These are still both much lower than the previous 16%, so still a great saving.
6. What about second hand electric cars
As long as the electric car has zero CO2 emissions, the benefit in kind is the same.
You should also get the full 100% cost deducted from your profits
Watch out if the CO2 emissions are greater than zero, as you will only be able to deduct 18% of the cost of the vehicle from your profits.
This is still a good tax deduction, as every year the 18% is deducted from the cost of the vehicle, until you sell the vehicle of the value left is £0.
7. What if I sell my electric car?
This depends on whether you bought it new or second hand:
- Bought new: add the full sales proceeds to your profits before working out your tax
- Bought second hand: deduct the sales proceeds from what’s left of the cost of the vehicle.
8. What about VAT?
- Generally speaking you can’t claim VAT on any car purchase, unless it’s used 100% for business.
- If you drive to and from work, and park the car at home, then HMRC are not going to accept that there’s no private use.
- Therefore, you can’t claim the VAT.
- All is not lost though, as the VAT is included in the cost of the vehicle, when we calculate your business tax.
- BUT if you sell the vehicle, you will have to add VAT onto the price you sell it for.
9. Can I put the cost of the charging point through the business?
Yes you can, and there are often grants you can claim to cover the cost.
10. Is an electric car really environmentally friendly?
I was talking to a client yesterday who supplies to the motor manufacturing trade. Did you know that it costs double the amount of electricity to make a tesla than an ordinary vehicle?
Consider also the strain on the National Grid if we all start plugging in our vehicles!
Check out The Future of Electric Cars by AutoTrader if you want to be fully armed with the facts, or if you have concerns about moving to electric.
The information above is very generalised. The impact on your personal and business tax will totally depend on your own situation, and the vehicle you’re looking at, so do speak to us for tailored guidance.
If you’re not quite ready for an electric vehicle yet, our blog on buying a car through your company may be what you’re looking for.
Thanks for reading!
Kinder Pocock are an approachable cloud-savvy firm of accountants based in Herefordshire but supporting businesses on the move.
We specialise in Security/Technology, Design and Indie Hospitality and Retail businesses.
Contact Us to see how we can help