Company - Electric Car

Purchased

If you purchase the car outright or via a loan (e.g. hire purchase)

Corporation Tax (the following can be used to reduce your company profits):

• Initial cost: a percentage is claimable:

  • If the electric car is new and unused, you can claim 100% of the cost in the first year.

  • If the car is second hand, 18% of the car’s value can be claimed per year on a reducing balance. For example, for a £60,000 car, £10,800 (£60,000 x 18%) could be claimed in the first year, £8,856 could be claimed in the second year ((£60,000 - £10,800) x 18%), £7,263 could be claimed in the third year & so on an so forth.

  • Balancing charge - when you come to sell the car, the difference between what you’ve claimed as a tax deduction and how much you’ve lost on the car is realised. For example, I bought a car for £60,000, claimed £10,800 in the first year and sold the car in the second year for £30,000. I could then claim an additional £19,200 (£60,000 - £10,800 - £30,000) as a tax relief. A car where I had claimed £60,000 in the first year would always result in a tax liability when I come to sell it.

• Running costs: MOT, servicing, insurance, repairs, hire purchase interest & road fund license.

• Mileage: 5 pence per business mile - this is how much can be reimbursed to the employee as they will be paying for the electricity to fuel the car.

VAT (if your business is VAT registered, this is how much VAT can be claimed back on your VAT return):

• Initial cost: No VAT can be claimed unless you are a driving instructor or taxi driver. (Warning: VAT is usually payable when you come to sell your car though which seems a bit unfair).

• Running costs: the company can reclaim VAT on any running expenses such as part of your MOT, servicing & repairs

Leased

If you lease the car

Corporation Tax (the following can be used to reduce your company profits):

• Monthly lease: this can be claimed fully.

• Running costs: MOT, insurance & road fund license.

• Mileage: This is how much can be reimbursed to the employee as they will be paying for the electricity to fuel the car. The rate to pay can be found using the following link and at 1 March 2023 is 9p/mile: www.gov.uk/guidance/advisory-fuel-rates

VAT (if your business is VAT registered, this is how much VAT can be claimed back on your VAT return):

• Monthly lease: you can claim 50% of the VAT on the hire charge.

• Running costs: the company can reclaim VAT on any other running expenses.

Please note: leasing is not to be confused with a HP (hire purchase) agreement.

Personal Income Tax

There is a personal tax charge arising on a company car called a "benefit in kind”.

The benefit in kind is calculated by taking the list price of the car (not to be confused with how much you paid for the car) and multiplying it by 2% for the 2023-24 tax year.

The benefit in kind in 2023-24 for an electric car with a list price of £60,000 would therefore be £1,200 (£60,000 x 2%). £1,200 would be added onto your self assessment tax return as benefit in kind ‘income’ and tax would be paid at your income tax rate - for a higher rate taxpayer, the amount personally payable per year would be £480 (£1,200 x 40% higher rate tax).

P11D Form

On an annual basis, the company must submit a P11D form to HMRC and pay Class 1A National Insurance. The amount due to be paid using the example above would be £82.80 (£600 benefit in kind x 13.8% class 1A NI) and is a corporation tax deductible expense.

Millward May Fees

As we have to do additional work for the annual accounts & provide additional advice throughout the year, we charge an additional £10+VAT/month if you have a benefit in kind in your business.

We can also help you submit your P11D form on an annual basis for a fee - this is something you can do yourself if you would like to save on costs.

Other Considerations

• The car must be purchased in the company name and annoyingly some providers charge a premium when purchasing a car through your business instead of personally.

• When you have a company car, you will need commercial vehicle insurance in the company name (which is usually a lot more expensive than personal car insurance) if you wish to claim it as a company expense. Your no claims discount could also be affected. We would suggest getting a quotation for commercial vehicle insurance before purchasing a company car. If you have more than one vehicle in the company name, you will want to look into fleet insurance which covers all vehicles. Commercial car insurance can sometimes be double the price of normal insurance and so it is usually more tax efficient to pay for car insurance personally!

• It is much simpler from an administration perspective to buy the car personally and claim business mileage back. Also, if you shut down the business, this can be a difficult & costly process especially if you are VAT registered.

• The benefit in kind calculation is a percentage of the list price (basically a recommended retail price) of the car which isn’t the same as the amount you pay for it. The list price of the car doesn’t reduce over time and so will remain the same for future tax years.