Company cars – part 4
Is it tax efficient to buy an electric car through my company
Why is an electric car more tax efficient?
Through a series of blog posts we have been looking at the benefits – or otherwise – of running a car through your company. This has become less attractive over the years.
However now that informed opinion has moved towards electric (and hybrid) vehicles, manufacturers have picked up the mantle spurred on by tax incentives introduced by Governments around the world. (A hybrid car is one that uses more than one means of propulsion. Usually that means combining a normal petrol or diesel engine with an electric motor.)
As you will know from the general press/news the intention in the UK is to cease production of all petrol and diesel cars before too long, and there are heavy tax charges being introduced to discourage owners from holding on to older cars.
In addition there are now incentives to encourage you to purchase electric (and again hybrid) cars and some of these will be particularly attractive to business users as they provide beneficial tax reliefs.
As we have said in earlier articles in this series, it can sometimes still be tax efficient for you to be provided with a company car.
The big thing to understand is that each set of circumstances is different and there is no substitute for getting individual advice. These are some of the things you need to take account of when buying a car through your company:
- There are incentives for purchasing electric and hybrid cars – effectively discounts promoted by the Government and manufacturers
- If you purchase a new car with emissions less than 75g/km the WHOLE of the cost of the car is set off against your company’s taxable profits
- The car must be a new car – first registration
- Your company has to PURCHASE the car. That does not mean you have to pay for it outright, but it must be acquired using hire purchase or similar. You cannot obtain the 100% tax allowance using a straightforward (operating) lease.
- You will be taxed on the benefit in kind from having a company car (see previous blog – link)
- When you eventually sell the car the company pays Corporation Tax on the proceeds – to counter the 100% tax relief you get on purchase. But if you replace the car in the same way, and if the tax rules are unchanged, then the tax allowance on the new car should more than cover the tax on the proceeds. And the cycle starts again.
Example
Your company’s profits in the year are £35,000 after your salary and expenses. You purchase a relatively modest hybrid in the year with emissions of 49g/km at a cost of £35,000. The cost of the car totally eliminates your company’s taxable profits in the same year. As Corporation Tax (CT) rates are currently 19% you will reduce your tax bill for the year by £6,650.
If your profits are higher than the cost of the car then there will be a small amount of tax to pay. If the profits are less than the cost of the car, there will be a loss in the year, so no CT will be payable, and the loss amount carried forward to reduce next years profits, £ for £
Therefore, overall it makes good financial sense currently to buy a low emission car! Subject to your individual circumstances. But don’t wait too long, as the Government keep changing the g/km at which they provide incentives and the car manufacturers have an ongoing battle to keep up.
The next and last article in this series looks at purchasing and payment options – should you lease?
For further advice existing clients email us at support@anytime.uk.com or call 03333 110 230
For new enquiries contact us now
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Company cars – part 3
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