Electric Cars
An exciting one for you today – and very topical. ELECTRIC CARS and what are the tax implications of them? Is this tax efficient? What else do you need to consider? So here goes my take on it! Let me know if you have any questions?
First things first – lets be clear it doesn’t matter how your business is structured – limited company, partnership or sole trader if your business buys the car it is considered (for our purposes) a company car and the rules are the same! Yay an easy one.
So broadly we need to consider the following:
Employee Benefit in Kind (AKA BIK)
If a company buys you a car which will be used for both business and personal use it is a called a benefit in kind. You will pay tax on this and have to disclose it either on your self-assessment or it will form part of your PAYE calculations.
However now we get to the good part! Benefits in kind (BIK) for electric cars are really really low. For the 2021/22 tax year, if your car is 100% electric the BIK is 1% of the list price of the car, rising to 2% for the next 3 tax years. In addition, you company can also provide you with all of the following without incurring any additional BIK costs to you as the employee:
- Insurance
- Maintenance
- Installation of charging point at work and at home
- Provision of a charge card to allow access to charge points
- Recharging at work costs
The benefit to the employee is amazing! They get the car and all they will pay is a BIK of 1%-2% of the list price and the cost of charging it when not at work!
Let’s look at it from the business side:
Employer costs
There are two ways a company can buy a car for its employees – outright purchase OR leasing.
An outright purchase will be a capital asset purchased by the company. For tax purposes this is an allowable expense on which first year allowances can be applied at 100%. Effectively you get the full tax benefit of the cost of the car in the first year instead of having to spread it across multiple years.
A lease can be an operating or finance lease and while the accounting and tax treatments for each are very different the end result is the same – an allowable deduction for costs associated with the car. So, no incurring costs and then having to add them back to your profit to increase your tax bill! Yay!
Electric cars and VAT
Here it gets a little more complicated. If the car is not used exclusively for business purposes (and I would argue unless your job is driving and you never take the car home and it stays at your business address it is not) then it is not possible to reclaim the VAT on the car purchase. If you lease it – you might be able to reclaim 50% of the VAT payable on the lease payments.
If your company installs electric charging points in its car park the cost of this will be allowable as a 100% deduction against taxable profit! However, if you do charge your car at work then remember to track your business and personal mileage carefully as it will affect your benefit in kind, the VAT the company can claim on the electricity and the mileage rate you can claim on your business mileage. Remember travel from home to your place of work is not considered business mileage.
I am an owner managed business what does this mean for me?
Basically, all good things! As an employer you would obtain full tax relief on the costs of providing the car. As an employee you are only taxable on the very low benefit in kind! Make sure you keep good records and ensure that you are not getting any more benefit than an employee who is not directly related to the business but my advice:
GO SAVE THE PLANET AND BUY AN ELECTRIC CAR!
