An overview of buying an electric car for the self employed

For the self-employed there are advantages of going green. These might not be as significant as those enjoyed by employees with company cars, but electric cars do attract a more advantageous tax treatment than their fossil fuel propelled equivalents.

For the self employed the benefit really is essentially one of giving a cash flow advantage.  The tax relief on qualifying vehicles is accelerated but, over the time of ownership, the tax relief available will still be the difference between the purchase and sale prices, restricted to exclude the percentage of private use.

What exactly is an electric car?

Electric cars can either be fully electric or hybrid.  Fully electric cars produce zero emissions (0g/km) whilst hybrids have a petrol powered engine along with the electric motor.  The distinction between them is important because of the tax treatment.

For a full 100% First Year Allowance to be available:

• The new electric car must be brand new and unused

• The car has to be fully electric (0g/km CO2)

• The car has to be purchased before 31 March 2025 (unless this date is extended)

How the tax works for qualifying vehicles:

• Tax relief is given as a 100% first year allowance in year 1, which is restricted to the percentage of business use

• When the vehicle is sold the proceeds are brought in as taxable profit, but again adjusted to reflect the business use percentage

What allowances are available for used Electric Cars and Low-Emission Electric Cars?

Although the 100% FYA will not be available, you will still be able to benefit from capital allowances but at an annual Writing Down Allowance (WDA) of 18%, at the business use percentage.

How does it work if I buy on finance?

·        Hire Purchase Agreement

If purchasing an electric car through a hire purchase agreement, you will still be eligible for capital allowances as though you had bought the vehicle outright, either the 100% FYA or the 18% WDA, restricted to the business use percentage.

·        Leasing Agreement

Where a car is leased, a 100% deduction will be available for ongoing lease charges rather than having the full vehicle cost being allowable in year one.  Again, the deduction will be restricted to the business use percentage.

What about the VAT?

Where a car is bought outright or on HP no VAT can be recovered.  This is completely blocked because, in all but very rare cases, the car will have some private use.  Where you lease a car, you should be able to recover 50% of the VAT, subject to the normal VAT rules.

Please get in touch

Please contact us if you are thinking of going green so we can advise you in relation to the actual vehicle you are thinking of buying and your own individual circumstances.