Think of buying an electric car through privately or through your Limited Company?
In summary, there’s no one size fits all answer and you need to consider the following when working out the bets option:
- the price of the car
- its CO2 emissions (if any)
- the year it was registered,
- the amount of business mileage, and
- your other personal and business tax affairs.
Below we look at the main taxes to consider when buying an electric car:
VAT
To reclaim the VAT on any car, it needs to be used exclusively for business (For HMRC purposes your usual commute between home and office is counted as personal rather than business travel).
If the car is to be used for a mix of personal and business journeys then the VAT treatment will be the same whether you buy it personally, or through the business: you can’t reclaim any of it.
If you lease the electric car rather than lease, you could be able to reclaim 50% of the VAT from the lease payment, even where there is some personal use. If there is a maintenance package within your lease cost, you would be able to claim 100% of the VAT back on that element.
Corporation tax
If you buy a fully electric car through your limited company you can offset the cost against your corporation tax bill, using the 100% first year allowance, meaning you can claim the full deduction in the year you buy it, where as most cars this deduction will be applied gradually over time.
If your company buys your car, but you charge it at home – you can claim 5p per business mile travelled to contribute to the cost of the electricity that is being consumed.
If you buy an electric car personally you will have to use cash that has already been subject to corporation tax and income tax. If you then use it for business journeys you can then charge your company 45p per mile for the first 10,000 miles and then 25p per mile after that.
Income tax and national insurance
If you buy an electric car through your limited company, but intend to also use it for personal use this will create a ‘benefit in kind.’ This means it will count as though your limited company has paid you additional income and there will be income tax and national insurance to pay as a result and you will need to complete a P46/P11D.
From 6 March 2022 the benefit in kind will be at 2%.
The valuation of the benefit in kind depends on the list price of the car and its CO2 emissions.
Vehicle Excise Duty (Road Tax)
Fully electric cars are from paying Vehicle excise duty (Road Tax) to help support drivers who choose the most environmentally friendly cars and vans. All cars that emit less than 75g/km CO2 will pay less road tax in the first year. You still need to tax your vehicle even if you do not have to pay anything.Fully electric cars are now also exempt from the ‘expensive car’ supplement. The ‘expensive car’ supplement was previously a charge for more expensive cars, costing over £40,000 but this has now been scrapped for electric cars until 31 March 2025.
Capital Gains Tax
There is no capital gains tax on selling cars.
Maintain of the electric car
All costs relating to a company car can be put through your business, such as insurance, tyres, new wiper blades, MOTs, servicing and repairs, etc – and are all fully tax deductible.
This article is intended for information purposes only and should not be relied upon as a substitute to professional advice. The information is correct as of April 2022.