• CALA Associates Ltd

Purchasing an Electric Car Through Your Limited Company

Updated: Dec 7, 2021

Traditionally purchasing a car for personal use through your Limited Company has come with a considerable amount of complication and taxes in the form of benefits in kind; however, there are considerable tax breaks available when purchasing electric. Let's take a look at how this works:

Tax for Your Limited Company

When purchasing an electric vehicle through your company, your company can benefit from Corporation Tax relief in the form of capital allowances. On new (first registered owner only) electrical vehicles the company can claim capital allowances of 100% of the price paid. Additionally your company will be entitled to corporation tax relief on the costs of maintaining and insuring the vehicle. Here's an example: An electric vehicle with a purchase price of £37,500 would reduce your taxable profit by £37,500 which means a corporation tax saving of £7,125 (19% of £37,500). Additionally, annual maintenance and insurance totals £2,000 attracting further relief of £380 (19% of £2,000). The company is; however, required to pay Employer's National Insurance charge of 13.8% on any Benefit in Kind incurred by the employee.

Tax for You / Your Employee.

Here's where it gets interesting and where previously, non-electric vehicles were heavily taxed. For fully electric vehicles you / your employee will incur much lower levels of Benefit In Kind. HMRC have published taxation levels for the next three years to allow for forward planning. In 2021/2022 BiK will be 1% rising to 2% in 2022/2023 and 2023/2024 How does that work in the example we used earlier? The Benefit in Kind on the £37,500 fully electric vehicle in the example above would be £375 in 2021/2022 and £750 in 2022/2023 and 2023/2024 You/Your Employee would pay tax at their highest tax rate on this amount. For basic rate tax payers that's £75 and £150 respectively whilst higher rate tax payers would incur £150 and £300 respectively.

VAT Considerations

It is important to note that VAT can only be recovered if the vehicle is used 100% for business use.

Compliance Considerations

You/Your company will have some additional statutory requirements to complete: - P46(car) informs HMRC a car is provided for private use. - P11d/P11d(b) issued (even if the charge is nil).

- Benefit reported on employee/director self-assessment.

The levels of Corporation Tax relief and Benefits in Kind for you/your employees is different for Hybrid vehicles and is dependent on the range and emissions. They'll be another article to follow on how this works. If you're unsure then speak to your accountant or reach out to us and we can provide advice on purchasing an electric vehicle through your Limited Company.

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