Buying a company car through your limited company could be fraught with difficulty, especially if you also retain it for personal use making it a more taxable commodity. Because the government are trying to encourage us to go green, however, buying an electric vehicle can have some benefits that those powered by petrol don’t offer.
There are advantages and disadvantages in buying an electric car through your limited company and a lot will depend on your circumstances and how it is used. If you are solely using it for business purposes, you can reclaim the VAT and off-set the purchase price against corporation tax making significant savings.
On the other side, if you buy an electric car through your business but intend to keep it for personal use only, it will be considered a benefit in kind and will be subject to tax as if it was income.
Of course, many will use their electric car for both personal and business use which can make calculating the amount of tax relief a little more challenging. In most cases, there are benefits in corporation tax savings while the individual driving the car personally will need to pay a benefit in kind tax – the good news is this is relatively low for electric cars.
Here we look at what the pros and cons are for buying an electric car through your business and what factors you need to take into consideration.
Can I buy an electric car through my business?
The short answer is yes. While electric cars are the future, deciding whether to invest in one right now can be challenging. Electric cars lower your CO2 footprint and make you more efficient.
The good news is that the Government is actively encouraging both businesses and private individuals to invest in this technology, aiming to lower the number of vehicles running on fossil fuels on our roads over the next few years.
That means they’ve introduced various tax relief incentives and grants to make it easier for businesses to buy.
For example, you can define it as a capital allowance to off-set corporation tax. In addition, there are grants for installing a charging point for the vehicle on your business premises.
How do you buy an electric car through a business?
You can buy any car through your business but switching to an electric vehicle has several advantages, even if working out the tax implication can be challenging.
Buying through your business gives you corporation tax relief, though if you are using it for personal driving, you’ll personally need to pay income tax and national insurance because it is considered, at least in part, as a benefit in kind.
It’s important first of all to look at what is available through grants and tax incentives when choosing to buy an electric car through your business:
- The Government is offering plug-in car grants up to £1,500 if you purchase a vehicle that costs under £32,000.
- There are also grants and incentives available for businesses that install charging points on their premises.
What are the benefits of buying an electric car through a limited company?
The Government is actively encouraging us, through tax incentives and grants, to switch to electric cars and that includes businesses of all types.
If the car is being used exclusively for business, then you will be able to claim back the VAT on the purchase. If it is also being used as a private vehicle, you will not be able to reclaim that VAT.
For example, if you run a fleet of vehicles that are entirely used by your team for work purposes then you can make significant savings by claiming back the VAT.
If they, however, park the car at home and use it to drive to and from work, this is classed as personal use and you can’t claim the VAT.
Our VAT accountants can help you with claiming back your VAT if you’re eligible.
If you have bought the car brand new, then you can claim 100% as a capital allowance.
But beware, it needs to be:
- A fully electric car.
- Have a CO2 rating that is lower than 50g per km.
It’s important to note that, should you later wish to sell the car onto someone else, then you would need to pay corporation tax on the proceeds.
You can also get relief on corporation tax through the maintenance and insurance for the vehicle.
If you are installing charging points for the vehicle or vehicles, you can get 100% relief on the cost of these. That can include the cost of installation of points themselves and any work that needs to undertake to modify the landscape.
If you install charging points and allow all employees to use them, these are not taxable as a benefit in kind as long as certain parameters are met.
What is the drawback of buying an electric car through a limited company?
The range of cars is still an issue with the charging infrastructure patchy in different parts of the UK. This can mean that businesses need to plan routes and operations more carefully to reduce costs than they would if, for example, using diesel cars.
Despite the grants and incentives available, electric vehicles can end up being more expensive in the short term.
Most electric vehicles are used for both personal and business journeys which means that the individual will need to pay some amount of tax (including income tax and national insurance) as a benefit in kind.
The good news is that this is much lower for fully electric cars and means they pay a small level of income tax of around 2% for new electric cars and employers have a minimal obligation for national insurance compared to fossil fuel vehicles.
For most, the personal tax liability is outweighed by the car itself and the fact that annual maintenance costs paid through the business attract tax relief.
Is buying an electric car through my business worth it?
Particularly if you are only using the electric car for business mileage, you will find a wide range of benefits in being able to reclaim VAT and a corporation tax saving.
Even with both personal and business use, there can be a lot of merit in buying an electric car.
Can a business claim VAT back on an electric car?
Only if the car is used solely for business purposes. If it is also used for personal driving, including getting to and from work, the VAT reclaim does not apply.
Is there VAT on electric car charging?
VAT is charged on electric car charging points but businesses can claim this back but this can be a little complicated and depend on where you recharge. Find out more here.
Switching to electric vehicles has several advantages. If you are using the car for purely business purposes, you can claim back VAT and offset against corporation tax. If it is also used for personal driving, the tax benefits can get watered down.