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Spondoo Accounting
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Spondoo Accounting

Buying an Electric Car (EV) through your business

June 16, 2022

Since the introduction of Telsa driving the modern EV market, the option to buy an electric car through your limited company is looking ever more attractive when compared to a petrol or diesel car. 

Can I buy an electric car through my limited company for tax benefits? 

Yes, you can buy an electric car through your company and it comes with some substantial tax and national insurance incentives. The UK government has invested in various schemes to facilitate the transition toward more electric vehicles on the road and the phasing out of new petrol and diesel cars. 

In this article, we will address the following ways your EV obtain relief on Corporation Tax (via capital allowances), VAT (Value Added Tax) and income tax/national insurance (i.e. benefits in kind). 

It is however important to know the following about the car before purchasing because they will affect your car tax rates: 

  • The CO2 rating 
  • The stated electric range – according to HMRC. 
  • The entire retail price and any extras. 

Capital allowance rates for electric cars 

When recording the purchase of the EV in your accounting system, you would typically record the amount as a fixed asset and claim corporation tax relief via Capital Allowances. 

Capital Allowances have various categories that define the portion of the car’s total cost that can be claimed for corporation tax relief. 

 Electric cars qualify for: 

  • Enhanced Capital Allowances are available for all zero-emission cars. It is a 100% first-year allowance if an electric car is purchased new and unused – the entire cost of the electric vehicle becomes deductible from profits before tax. 
  • A 130% super deduction from profits before tax. This tax incentive is claimable if you invest in an electric vehicle charging point for your business – but is only available until 31 March 2023. 

VAT treatment of electric cars purchases 

The general rule for claiming the VAT on the purchase of company cars is that the vehicle should be used wholly & exclusively for the purpose of the business, with no element of personal use. Therefore, you can only reclaim the full VAT on the purchase costs of an electric car – if it is used exclusively for business purposes. It is crucial to remember that HMRC considers your usual commute between home and office counts as personal rather than business travel. 

!Warning! – the above applies to new cars only – there may be more restrictions applied to used cars so you must investigate this area in more detail. 

The only expect to this strict rule is where you rent/lease an electric car through your company. In this instance, you would be able to reclaim 50% of the VAT from the lease payments, where there is an element of personal use. Where the leased electric car is exclusively used for business, you can again claim 100% of the VAT incurred is claimable. 

Benefit-in-kind (BIK) for electric cars 

Like all company cars made available to employees or directors, a benefit in kind will arise as soon as the electric car is utilised for personal use.  

However, electric vehicles have much lower BIK tax rates: 

  • For the 2021/22 tax year, the BIK rate for all zero-emission vehicles is 1%.  
  • It is due to rise to 2% for the 2022/23 tax year. 

It is crucial to remember tax on BIKs must be paid by both the company and the employee. In that case: 

  • The company will pay – P11D value (the value of the electric car) x BIK rate based on CO2 (1% as set out by the government) x 13.8% (the rate of Class 1A National Insurance contribution payable by employers). 
  • The employee will pay – P11D value (the value of the electric car) x BIK rate based on CO2 (1% as set out by the government) x employee’s income tax rate.  

Electric car grant 

The plug-in car grant (PICG) is available to those buying eligible electric cars, vans, and motorcycles. It offers £2,500 towards the cost of qualifying plug-in cars that cost no more than £35,000. To qualify- the vehicle must have an electric range of at least 70 miles. If you are buying an eligible electric vehicle through your company, you do not need to do anything to apply for the electric car grant. The car dealer will apply for the electric car grant on your behalf, and you will receive it automatically by way of a discount on the price. The electric car grant will be available until 2023. 

What if I buy an electric car personally – and use it for business? 

Buying an electric car yourself will make you miss out on the benefit of claiming the purchase price or running costs against your Corporation Tax bill. However, no taxable benefit in kind will arise while using the car. 

You and your employees using their personally acquired car for business are able to reclaim business mileage from your company at HMRC’s published rates free of tax and national insurance. For the 2021/2022 tax year, the mileage rate for a vehicle is £0.45/mile for the first 10,000 miles in each tax year and £0.25/mile afterwards. 

TIP: It is crucial to remember that even if electric cars cost less to run, they are more expensive to purchase. It is advisable to consider your specific situation before you buy an electric vehicle personally. 

Need expert help? 

For further guidance, you can also read these related articles: 

  • Buying a car through your business 
  • Buying a Motorbike through your business 
  • Buying an Electric Van through your business  
  • Forms P11D and P11D(b) – benefits in kind returns 

If you are looking to buy an electric vehicle through your company, contact us for help in calculating your possible corporation tax savings and the effect of the purchase on your personal tax when considering the Benefit in Kind.

 

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Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

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