Purchasing Company Electric Car
Posted on 30th June 2022 at 09:25
The Tax Benefits and Drawbacks of Purchasing a Company Electric Car
This article will explain the benefits and drawbacks of purchasing a new fully electric company car. The tax implications for hybrid electric cars are different as this is affected by the electric range so please contact us directly for queries relating to hybrid cars.
What is a ‘new’ car?
New cars are ‘unused and not second hand’. A car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser, or used as a demonstration car.
New Electric cars (zero CO2 emissions) are eligible for first year allowance. This allows the full cost to be deducted from the trading profits in the year of acquisition to reduce the taxable profits and therefore the corporation tax. In contrast, for petrol and diesel cars with CO2 emissions of more than 50 grams per kilometre, the capital allowances are either 18% or 6% of the tax written down value depending on the CO2 emissions. Therefore, from both cash flow and time value of money perspective, electric cars provide the most corporation tax relief.
In addition, the new 130% super-deduction apply to the new and unused, charging points. This relief allows the taxable profits to be reduced by 130% of the cost the charging points. This is valid for acquisition made until 31 March 2023. You can read more about super-deduction on our earlier blog here
Low Taxable Benefit-in-kind
Benefit-in-kind (BIK) for company cars arises when it is available for private use. In the current tax year, the benefit-in-kind (Bik) for electric cars is 2% of the list price. In contrast, electric and diesel cars can attract up to 37% BIK. Bik attract employer’s national insurance contributions and also a taxable income for income tax purposes. Therefore, the low Bik rate makes electric car a tax efficient company car.
Under current law, an electric vehicle will still be viewed as a car for VAT purposes. Therefore, VAT is not recoverable on purchase, unless it can be demonstrated that the car is only available and used solely for business purposes. In practice this is very difficult to prove, in particular for owner managed businesses where the car is parked outside your residential home. However, like other leased company cars, 50% VAT can be reclaimed on the leasing charges where there is private use of electric cars.
As with any business capital assets, in the event of cessation of trade, if you retain the electric car for personal use, the market value of the electric car needs to be added back to the corporation tax return to increase the taxable profits and therefore, corporation tax. The same applies for the charging points.
To conclude, fully electric company cars provide better tax reliefs than petrol, diesel cars, or hybrid cars and can purchased through your company without incurring lower taxable BIK.
At Chart Accountancy, we provide the full tax and accounting compliance work to reflect the acquisition, and disposal of electric cars and ensuring that you receive the correct tax reliefs.
For help and advice on the new electric cars, please get in touch with your usual Chart Accountancy contact or email: [email protected]
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