Can you buy an electric car through your company?
As a small business owner myself, our car is ageing and a bit of a gas guzzler, so we’ve been looking around at our options. Petrol-head hubby wants something sporty, sleek and elegant – a high-performance car with off-road capability (not sure where he’s planning to take it in Suffolk suburbia where we live) but he tells me it needs to be a practical workhorse for our family of four.
As the accountant and money manager in our family, I want something that’s tax-efficient, cost-effective and preferably environmentally friendly. Although I don’t travel much for work as a cloud accountant, I do drive occasionally, and I want to be comfortable and doing my bit for the environment. So can you buy an electric car through your company? Yes you can.
So what kind of car should we buy?
It’s really down to you and your lifestyle. Some prefer a Tesla and others prefer a smaller car. Weigh it up as if you are buying a car normally, as electric cars come in many shapes and sizes.
Why should I buy an electric car?
So many reasons. They are better for the environment, have lower running costs, lower maintenance because there are fewer moving parts, they hold their resale value better than a petrol or diesel car and, according to many of the people I know with an electric car, they are a dream to drive. Just press and go. One client with a Tesla Model X tells me it practically drives itself!
The downside however of all electric vehicles is the range that you can travel on a single battery charge, how long it takes to charge the car, and, of course, finding a charging point that is available and working.
However, one of the main advantages of buying electric are the tax benefits.
See also: Is it better to buy or lease a car for your small business?
What kind of electric car can I buy through the business?
You can buy any car through your business but just because you could, does not mean you should. A gas-guzzling car with emissions of 170g/km+ and a list price of £50,000 has a benefit in kind (BIK) charge of £18,500 which is roughly £3,700 in tax at the lower rate and £7,400 in tax at the high rate (37 per cent BIK Rate 2021/22). The business will also pay 13.8 per cent Class 1A National Insurance contributions of £2,553 but these are also tax deductible for Corporation Tax purposes.
Compare that to a fully electric Tesla Model X with a list price of £90,000. BIK rates for fully electric cars are 1 per cent in 2021/22 (2 per cent for 2022/23 and 2023/24,) which is a £900 BIK to declare on your personal tax return. This will cost the business £117 in Class 1A National Insurance contributions and £180 of personal tax for the lower rate taxpayer or £360 for the higher rate taxpayer.
Why put a car through the business?
If you are buying or leasing a car out of your after-tax earnings – your director’s salary or your dividends – you will have already paid tax on those earnings.
If the business buys the car – then there are tax breaks available to your business on the purchase of the vehicle.
If you buy the car outright or get a finance agreement to buy the car – then you have an asset in the business and tax breaks on the purchase price of the car.
What are the tax advantages of putting an electric car through the business?
You get 100 per cent capital allowances on the purchase of the car in your tax return, so say your business has £100,000 of taxable profit – you would normally pay £19,000 of corporation tax. But if you buy a brand-new electric car for £80,000 whether you have paid for it fully or financed it, then the capital allowance reduces your taxable profit from £100,000 to £20,000, which means you only pay £3,800 of corporation tax. A saving of £15,200 in that first year. So your £80,000 car really cost your business £64,800. (The car has to be fully electric and brand new to be able to claim the 100 per cent capital allowance in the first year).
Can I lease an electric car through my business?
Yes of course. If you prefer to lease the car, rather than buy it – the expense goes to your profit and loss account and is fully allowed against corporation tax. Do be aware that if you lease a car – you will pay the lease cost plus VAT.
There is a 50 per cent restriction on the recovery of VAT on lease cars – for the assumed personal benefit – effectively a 10 per cent VAT rate on the lease. If there is a maintenance package within your lease cost, you can claim 100 per cent of the VAT back on that.
>See also: 8 of the best electric cars for small business leasing
Can I claim mileage?
If the business buys your car, but you charge it at home – you can claim 5p per business mile travelled to contribute to the cost of the electricity that is being consumed. The 5p per mile is the Advisory Fuel Rate (AFR) set by the Government and is used for reimbursing the employee for the cost of fuel for petrol or diesel cars and more recently they added the 5ppm rate for electric cars. Check Gov.uk regularly as rates are updated every quarter.
Who pays for the insurance and the repair costs?
All costs relating to the company car can be put through your business – insurance, types, new wiper blades, MOTs, servicing and repairs – are all costs relating to the upkeep and maintenance of the company car and are all fully tax deductible.
Have I got a free car?
Well, in that you have a fantastic new electric car, you didn’t pay for it personally, and the company contributes to the cost of the electricity you will use to charge the car, then yes. Your business has funded your car for you. It will still cost a couple of hundred pounds as a taxable benefit in kind, but I think it’s worth it – don’t you?
Lisa Dickson is an accountant and founder of Caseron Accounting
Environmental checklist for small businesses