Getting an electric company car
Getting an pure electric car can have some great tax benefits if you run your own company.
Here’s a quick summary
Tax relief on the cost of the car
If you buy a new electric car then you get the full cost of the car set against your profits in the year you buy the car. Then when you sell or trade the car in the proceeds will be added to your profits. This means you get tax relief for the amount of value the car loses.
If you buy a used electric car then you get a writing down allowance of 18%. This means that you have 18% of the cost of the car set against profits in year 1. Then in year 2 you get 18% of the cost less the year 1 allowance you received. And so on. When you sell the car you’ll either pay or get tax relief so that you’ll ultimately get tax relief for the full cost.
If you lease the car then you’ll get tax relief for the rental costs (and 50% of the VAT if you’re VAT registered).
In practice I find that this best option is to get the best finance deal you can find and let the tax position follow.
Tax relief on running the car
You’ll get the costs of running the car like insurance, servicing and repairs set against your company profits.
Tax you have to pay on the car
If you have a company car then you have to pay income tax on the ‘benefit in kind’ value. On a fully electric car this is currently 2% of the list price (the list price being the retail price for a new car plus options and before any discounts you might receive).
For example, if the list price of the car is £50,000 then the taxable benefit in kind is £1,000. This is then added to your income for the year. How much tax you’ll pay depends on your other income so a basic rate tax payer might only pay 20% whilst a higher rate tax payer can expect to pay 40%.
The company also has to pay some National Insurance. Currently this is 15.05% (so in the above example it would be £150 of tax the company pays each year).
Getting the car partway through the tax year
If you get (or give up) the car during the tax year then the benefit in kind is reduced in line with the number of days the car wasn’t available to you.
Getting the paperwork right
For it to be a company car it’s not enough that the company pays the bills. All the paperwork and agreements need to be in the company’s name. This goes for bills relating to the car in future too.
Charging at home
The company can pay for a charge at home but, unless you have a separately metered electricity supply billed to the company then you need to pay for the electricity. You can claim 4p a mile for business miles travelled in your electric car.
Details of the car have to be provided each year to HMRC on a form called a P11D. This is usually an additional service so if you’re a client then ask us about the additional fees.
Changes in Government policy
The Government may decide to change the benefit in kind rates on company cars in the future. Care needs to be taken not to enter a very long agreement for a car that you cannot terminate just in case the tax benefit changes.
And finally, these notes are for general information only. Get proper advice before undertaking any transaction like this.