If you can afford to go and buy a new one, then why wouldn’t you?
There are great tax advantages in doing so and, in theory, it will also increase your green credentials. Ok, so you can have the argument over whether an electric car is greener than a non-electric car to produce or look at whether the cost savings you get, may take years to make up for the greater cost of an electric car, but from a tax point of view, they make great sense. The government want people to switch to electric and are giving great tax incentives to do so. If your company is promoting itself as green, then it can also look good as well. More and more potential customers are asking their suppliers about their green credentials, and having electric vehicles can help support your case. Is this a fad or can you genuinely help to save the planet?
That’s for another time but why not take advantage of this green tax relief.
Let’s crunch the numbers (well we are accountants at the end of the day).
If you buy a new (not second hand) electric car, then you can write off the whole cost against your profits. So buy a £30,000 electric car and that will reduce your tax payable by £5,700. Not bad! It even applies if you get a loan to buy it.
You could even push the boat really far out and get a top of the range Porsche Taycan for say £150,000 and save £28,500 in tax. OK, that is a long way, but you get the point.
But that’s not the best part. As an employee, the benefit in kind for the current year is only 1%. What does that mean? It means that you are taxed on 1% of the list price of the car. So, take our £30k car, it will cost you only £60 per year as a basic rate taxpayer and £120 per year as a higher rate taxpayer. So effectively it’s a win-win situation. The company benefits and it costs you very little indeed for the privilege of having a company car.
If you are an owner-managed business and previously ran your own personal car and claimed back mileage, you may want to consider switching. Previously you would have withdrawn funds from the company and paid tax on this to finance a personal car. So you’d pay tax on the dividends and tax deductions were only available to the company on the mileage claim. It used to be efficient, but not anymore.
So as it stands, buying an electric car through your company now makes perfect sense.
One word of warning though. The government has a history of encouraging people and businesses with great incentives and then changes the rules. So will we see the car tax percentage increasing madly? They are due to go to 2% next tax year, but after that who knows? The top rate of tax for a diesel car is 37%. You have been warned!!
For further information or to discuss your situation, contact our Tax team or watch this short video where Steven Glicher explains more