How to buy an electric car (and save tax)
Electric cars will help you reduce your environmental impact, benefit from lower running costs, and save you both personal and corporation tax. The most well-known electric car – Tesla, has four models available now making it a great option for business owners and employees looking to swap their petrol and diesel cars for zero-emission vehicles.
- Provided the fully electric car is brand new, it will qualify for Enhanced Capital Allowances on an outright purchase or hire purchase. A first-year allowance which allows the company to deduct the full purchase price from profits before tax. This is in addition to the normal Annual Investment Allowance
- If the car is acquired through a lease, meaning the company will not own the car, as the Co2 is under the threshold of 50g/km, you can deduct the full monthly lease cost on the company profit and loss account statement
- Provided you are registered for VAT, you can potentially reclaim 50% of the VAT on lease payments for your electric vehicle when you put your car through your company. You can claim 100% if the car is for 100% business use only and not available for private use
- If you buy the car, you can claim 100% VAT if it’s only used for business miles and not available for personal use at all
If you install a charging point at work, this qualifies for the first-year allowance and you can claim 100% tax relief on these costs in the year they are incurred.
- No London Congestion Charge
- No Road Tax
- No Fuel Benefit to pay if it is a fully electric car
- The cost of fuel is also considerably lower, as the car plugs into the many free chargers dotted around the country. Alternatively, you can recharge by plugging in at home
- The company can pay for the insurance, car tax, servicing and maintenance costs
For the Employee
- If the car is an ultra-low emission vehicle (<50g/km) it can be provided to your employees using a salary sacrifice scheme. The money is taken from the employee’s salary before tax and national insurance is worked out. This will mean income tax and national insurance are lower due to the sacrifice. Fully electric cars on a salary sacrifice scheme are taxed per the normal Benefit in Kind rules.
- The Benefit in Kind tax is 2% for 2022/23 based on the EV's taxable value, which is applied to the list price of the car. This is expected to remain at 5% until 2024/25. The individual will pay income tax on this value and the company will pay the national insurance, which for 2022/23 is 15.05%.
- The Benefit in Kind tax (BIK) for hybrid vehicles will depend on the car's zero-emission mileage.
- There isn’t any taxable benefit for the employee if they charge their electric car at work.
- The employee can reclaim the electricity at 5p per mile for business mileage in company cars when charging at home or at a public charging point only. The charging station usually provides a receipt for the amount spent.
For example, a company purchases a fully electric car at £50,000 including VAT and the director who will use this as a company car, including personal trips, is a basic rate taxpayer:
- Corporation tax savings: £9,500 in the year of purchase
- Personal tax 2022/23: £50,000 x 2% = £1,000 is the BIK value. The director will pay tax on £1,000. Being a basic rate taxpayer this is £200
- National Insurance 2022/23: The company will pay 15.05% on the £1,000 BIK value, resulting in a payment of £150.50
So, how much tax would you save?
How much tax you’ll save would vary depending on your personal circumstances, but hopefully the above has provided a good starting point. If you’d like us to work out exactly how much tax you’d save if you purchased or leased an electric car, please get in touch. We will be able to provide you with professional advice on:
- Car calculations based on hire purchase, finance lease, and operating lease so you can make a decision on what the best option is for you
- Any corporation tax savings and VAT implications
- Any personal implications and what the tax benefits are
- What are the national insurance contributions implications for the company
- Linking any calculations with your current salary and dividend tax whether you are a basic rate taxpayer or if you pay higher rate income taxes
Have some questions?
If you have any questions about buying an electric company car or would like to calculate how much tax you could save on your new car, fill in the form below and we’ll pop you through more information on the tax implications of going for a low or zero-emissions vehicle.