top of page
Search
  • Shepherd Partnership

An overview of buying an electric car through limited company

Updated: Jul 9




Electric cars are becoming increasingly commonplace. Electric cars can provide significant tax advantages where qualifying conditions are met.


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.


What do I need to consider?


Before buying an electric car, there are some key considerations to think about:


  • CO2 emissions

  • Where CO2 emissions are in the range 1 and 50g/km, you will also need to establish the electric range of the car

  • The exact list price of the car (which may differ from the actual purchase price)


Corporation Tax Savings


The tax relief on the outright purchase of 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.


For a full 100% First Year Allowance (FYA) 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

  • When the vehicle is sold the proceeds are brought in as a taxable profit


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%.


How does it work if I buy on finance?


·        Hire Purchase Agreement


If purchasing an electric company 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.


·        Leasing Agreement


Lease payments for electric cars will be included in the profit and loss account for the relevant year, reducing the profit and the Corporation Tax charge.


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.


Benefits In Kind (BiK)


Benefits in Kind are non-cash assets which are available for the private use of a director, employee or their family with tax implications for both the employer and the employee.


Benefits in Kind form part of an employee's taxable income at the cash equivalent amount. Employers also pay National Insurance Contributions (NICs) at 13.8% on the same cash equivalent amount.


The BiK company car rate for a mid-range standard petrol and diesel cars is currently around 29% of list price, although can be as high as 37% for a high emission car.  For fully electric cars the rate is just 2%, which will rise by 1% each year until 2027/28 when it reaches 5%, but will still be considerably less than for petrol and diesel cars.


Let’s look at an example:


Fully Electric

Petrol 124g/km

 

List Price £32,000

List price £23,000

 

BK Value 2%/29%

640

6,670

Income Tax employee:



Basic rate

128

1,334

Higher rate

256

2,668

NIC for the employer

Class 1A NIC at 13.8%

£88

£920

 

What about Hybrid Cars?


The 2% BiK rate only applies to fully electric cars.  The rates for hybrids vary depending on the emissions and their electric range.


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.

15 views0 comments

Comments


bottom of page