One of most common areas of discussion with our owner managed business clients is how their car should be purchased. Should we buy it through the Company? Is it better to own it personally? The answer used to be fairly straight forward, but as the world embraces the need to ‘go green’, our advice has had to change with the times!
A petrol/diesel car attracts high levels of BIK and is generally not allowable for tax purposes so our advice in most cases would be to own them personally, but the rise in popularity of electric cars has been a real game changer.
Buying an electric car through your Company, as an owner manager, can be an incredibly tax efficient medium of extracting funds from your Company. However, each case is different and there’s no ‘one size fits all’ situation for you and your company.
Have a read of our thoughts below but as always, before you take the plunge, give us a call to discuss and we can advise you on the best course of action for your situation.
Let’s have a look at some FAQs around owning electric cars in a company…
Is the cost of an electric car an allowable cost against my profit?
If you buy an electric car through your business, you can claim a capital allowances of 100% of the price of the car in the first year. There is a catch though, the electric car must be brand new and fully electric.
If you’re looking at buying a second-hand electric car, there is still capital allowance reliefs available but the relief is spread across a number of years. With hybrids, again there could still be an allowance, but be aware this is dependent on the CO2 emission levels.
What about the charging point?
100% capital allowances are also available on the charging points. In fact, in April 2021 a super-deduction was announced and will allow companies to receive a 130% deduction of the cost of the charging point on their profits. Be quick though, as this is only available until 31st March 2023.
Can I claim back VAT on my company electric car?
If there is any private use of your electric car, just like other company cars, sadly your company cannot reclaim the VAT.
If you were to lease an electric car through your company however, it works a little differently. Leasing a car through your business means you can claim back 50% of the VAT from the lease payments regardless if the vehicle has had personal use. There are strict rules as to whether a car is leased or owned so please ask us if you aren’t sure.
Capital Allowances for Electric Cars
If you’re buying an electric car through your company, your purchase may be subject to certain capital allowances from the government. If you’re buying the vehicle as the first registered owner, the employer may be able to claim a capital allowance of up to 100% of the price paid for the vehicle. However, this allowance is only available on vehicles that are fully electric or have a CO2 emission rating of 0g/km.
If the vehicle you’re looking to purchase has had a previous owner, the business may still be eligible for a capital allowance. For more information on capital allowances on business owned cars, visit the HMRC guidance page.
Will I have to pay BIK (benefit-in-kind) tax?
Benefit-in-kind is a tax on employees who receive perks in addition to their usual salary, this includes any company car used privately and also applies to owner manager businesses.
The tax you will need to pay on your car is down to two factors: the list price and the CO2 emissions. As electric cars generally have zero emissions, they attract a lower BIK tax rate compared to petrol and diesel cars.
Currently for the 2021/2022 tax year, the BIK rate stands at 1% for all zero-emission vehicles and is set to rise to 2% in the 2022/2023 tax year. This compares to up to 30% plus for some petrol cars.
Will I have to pay road tax?
Zero emission cars are zero-rated standard tax for both the first year and all subsequent years. That means you don’t pay any road tax on a pure electric vehicle. Road tax on a hybrid car will depend on the Co2 emissions. Please remember though, you must tax your vehicle even if you have nothing to pay!
Can I get a grant for an electric car?
You can get a discount on the price of brand new low-emission vehicles through a grant the government gives to vehicle dealerships and manufacturers. The maximum grant is £1,500 and only vehicles that have been approved by the government are eligible for a grant.
What about my mileage?
Mileage can be reclaimed for electric cars for personal charging. This is as per the advisory rates set by HMRC. The advisory rate for electric cars is 5p per mile. It’s worth noting that if the electric car is owned privately, mileage rates can be claimed at 45p (like petrol/diesel cars).
What’s the conclusion?
In summary, if you need a new car and own a company, the purchase of an electric car can be an incredibly tax efficient way of financing it and is something you should definitely consider. However, remember that every circumstance is different.
There are lots of things to consider and tax is always a tricky subject so it’s important to get the right advice before making a decision. If you are thinking of buying an electric car through your business, please talk to our team first for honest, no nonsense advice!
Jo Moran
Jo Moran is a Chartered Accountant at Rogers Spencer and has been working with us since 2011. Jo specialises in Accountancy Solutions, Audits and Payroll Administration. Find out more about Jo here.