Does it make sense to buy an electric car privately or through your limited company?
The technology behind electric cars is getting better every year. From the Tesla Model X to the Nissan Leaf to the BMW i3, electric car companies are taking the market by storm and you'll find many eco-friendly alternatives to the traditional car. You'll find electric car charging points up and down the country and even free parking spaces. So if you've found yourself scrolling the list of best electric cars and started to consider if you should buy it personally or though your company, this is the blog for you.
For business owners, the question is whether you should buy an electric car privately or through your limited company...
In summary, there’s no one size fits all answer. To work out the cheapest option you need to take into account:
Generally higher rate tax payers will make a substantial saving in the short term, with gains decreasing each year of use.
In this article we will summarise the main tax considerations for buying an electric car through a limited company and then go through a worked example.
To reclaim the VAT on any car, it needs to be used exclusively for business. Remember for HMRC VAT purposes, your usual commute between home and office is counted as personal rather than business travel.
If the car is to be used for a mix of personal and business journeys, then the VAT treatment will be the same whether you buy it personally or through the business: you can’t reclaim any of it.
If you buy an electric car through the business, you can offset part of the cost against your corporation tax return bill. With most cars, this deduction will be applied gradually over time. However with electric cars, you can claim the full deduction in the year you buy it.
If you buy the car personally, you will have to use cash that has already been subject to corporation tax and income tax.
If you use your personal car for business journeys, then you can charge the company 45p per mile for the first 10,000 miles and then 25p per mile after that.
If you buy a car through the business but intend to also use it for personal use, this will create a ‘benefit in kind.’ In summary, this will be as though the business has paid you additional income and there will be income tax and national insurance to pay as a result. You’ll also need to complete an additional filing called a P11D once a year.
From 6 March 2020, the ‘benefit in kind’ has been 0%! However, this is rising to 1% from 6 March 2021, and again to 2% from 6 March 2022.
The valuation of the benefit in kind depends on the list price of the car and its CO2 emissions. For example, a fully electric car that cost £50,000 would give rise to a benefit in kind of £0 in 2020/21 (with the exact amount changing each year).
Buying a £50k + VAT car through business and using 50/50 business and personal. Higher rate tax payer.
Cost of car: £50,000
VAT (£50k * 20%): £10,000
Corporation tax deduction (£50k * 19%): -£9,500
Income tax saved: -£24,000
National insurance saved: -£7,200
Benefit in kind tax (£6,500 * 40%): £2,600
Class 1A national insurance (£6,500 * 13.8%): £897
Net cost after one year: £29,997
Note: the income tax deduction and national insurance saving above takes into account the tax that you would have to pay if you were to use income acquired via salary to buy the car. This the best possible case saving and is likely to be lower.
Buying a £50k + VAT car personally and using 50/50 business and personal. 4,000 business miles per year.
Cost of car: £50,000
VAT (£50k * 20%): £10,000
Business mileage deduction (4,000 * 45p): -£450
Net cost after one year: £59,550
Deloitte have a detailed site on car taxes.
This article is intended for information purposes only and should not be relied upon as a substitute to professional advice. The information is correct as of February 2021.
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