Author: Gina Christodoulou
At SAIL, we are often approached with the question of, “Should I buy a car through my business?”
Historically our answer was usually, “No. It is too complex, and you end up with a big tax bill at the end of it I your personal capacity.” This was the answer because any private use is treated as a fringe benefit (benefit to the employee) and this is taxable in your self-assessment tax return and can end up being quite a bit. It only really made sense to buy a car in your business if it was solely used for business.
Now, with the government’s push to electric vehicles, there is an opportunity to buy a zero emissions, fully electric and brand-new vehicle car and even if you use it for private purposes as well, the fringe benefit is small and manageable.
Ask your SAIL advisor for a calculated comparison to see how this may impact you.
This article explores some of the things to think about, the potential savings you can make and the additional admin you have to do.
Issues to consider when buying an electric car
It is critical to know the following about the vehicle prior to purchasing.
- The CO2 rating
- The stated electric range according to HMRC
- The full retail price of the car and any extras
The above factors play a part in deciding on whether the purchase is worthwhile or not (from a tax perspective). In our view only zero emissions vehicles are worthwhile if there is a private use component, but you may disagree.
See the HMRC calculator for the impact of these factors on your personal tax.
HMRC calculator: https://www.gov.uk/calculate-tax-on-company-cars
New vs second hand. Where the car is bought brand new (strictly first registered owner only) the employer can claim a capital allowance of 100% of the price paid where the car is fully electric or has a CO2 rating of lower than 50g. Purchasing a second-hand electric vehicle through the company can still be beneficial to the employer as some capital allowance reliefs are also available on second-hand vehicles (just not the full 100%). See HMRC’s guidance below for further detail.
https://www.gov.uk/capital-allowances/business-cars
UK Plug-in Car Grant
In March 2021, the Government confirmed a UK Plug-in Car Grant to a maximum of £2,500 on cars costing up to £35,000. This scheme works by giving manufacturers and distributors a grant for low emissions vehicles. Make sure you ask the seller whether they have taken this into consideration in the price they are offering you.
What zero emissions cars could I get?
While we are not the experts, there seem to be a few available on the market including:
· Vauxhall Corsa-e 100kW Elite Nav 50kWh 5dr Auto (Price ~ £27k; Range 208 miles)
· Kia e-Niro 150kW 4 64kWh 5dr Auto (£30,000; range 282 miles)
· Renault Zoe i Iconic R135 Z.E.50 Rapid Charge 100kW Auto (£29,000; range 239 miles)
These are sometimes advertised with a BIK 1% implying they are in the 1% benefit in kind range. This means only 1% of the value is treated as taxable if you use the vehicle for private purposes. So, while they may be quite expensive, they are usually tax deductible in the company saving you 19% corporation tax and only 1% of the value is taxable in your personal capacity (at your marginal rate).
VAT treatment on the purchase:
To reclaim the VAT on any car, it needs to be used exclusively for business. Remember 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 cannot reclaim any of it.
This may mean you get a 20% surcharge on your vehicle so you need to balance this with your company tax saving.
There are some instances where VAT can be claimed on the purchase of a vehicle. Vans qualify. There are some further rules on this so please reach out to your SAIL advisor for further detail.
Corporation Tax Relief for the Employer:
Where the car is bought brand new (strictly first registered owner only) the employer can claim a capital allowance of 100% of the price paid where the car is fully electric or has a CO2 rating of lower than 50g. A £30,000 purchase would reduce your taxable profit by £30,000 and give a corporation tax saving of £5,700 (£30,000 x 19%) in the year of purchase.
You should note though, that when the car is sold, any proceeds would have corporation tax charged at the rate for that year, currently 19%. So, if you sold the car for £20,000 after two years, you would have to repay corporation tax of £3,800.
The employer will also be able to get corporation tax relief on the costs of maintaining and insuring the vehicle. For example, if the annual maintenance costs paid by the company were £2,000, there would be a tax saving of £380.
Employers NI:
Whatever the Benefit in Kind (BiK) value is for the employee, there is an Employers NI charge of 13.8% per annum. A BiK of £300 would create Employers NI of £41.40.
What does the company need to do to comply?
The company will have some statutory requirements to complete annually.
– P46(car), informing HMRC that a car is provided to employee for private use
– P11D, issued to employee for their self-assessment return to report the benefit in kind. Note, this is a requirement even if the P11D is NILL due to the zero emissions vehicle being in use.
– P11d(b) is required where there are charges to PAYE and National Insurance
Tax for the Employee:
HMRC calculator: https://www.gov.uk/calculate-tax-on-company-cars
Benefit in Kind (BiK) rates are shown in the table below. These percentages are applied to the full retail value of the vehicle including all extras you may have fitted.
|
Vehicle CO2 emissions |
BiK rate for cars registered after 6 April 2020 |
|||
|
2019-20 |
2020-21 |
2021-22 |
2022-23 |
|
|
0 g/km |
n/a |
0% |
1% |
2% |
|
1-50 g/km (electric range >130 miles) |
n/a |
0% |
1% |
2% |
|
1-50 g/km (electric range 70-129 miles) |
n/a |
3% |
4% |
5% |
|
1-50 g/km (electric range 40-69 miles) |
n/a |
6% |
7% |
8% |
|
1-50 g/km (electric range 30-39 miles) |
n/a |
10% |
11% |
12% |
|
1-50 g/km (electric range <30 miles) |
n/a |
12% |
13% |
14% |
A fully electric car with zero emissions and a retail price of £30,000 would therefore have no BiK for 20/21, £300 for 21/22 and £600 for 22/23. These figures would then be taxed on you at your highest rate of tax. So, if you are within the basic rate band your tax payable for 21/22 would be £60 (£300 x 20%). You can see from the above that this BiK rate increases significantly where the electric range is lower for cars producing CO2.
Ok, but how do I decide?
Let us look at a working example:
Car purchased in personal capacity; business use expensed back to company.
Anthony buys a car in his personal capacity costing him £25,000 of his after-tax money. He uses the car for business travel and drives 1,000 business miles in the year.
Anthony can claim 45p for every business mile he drove in the year. That is an eligible claim back from his business of £450.00 to him personally.
The personal expense to Anthony has been the upfront car cost of £25,000 less the £450.00 he has claimed back from his company, leaving Anthony with having spent £24,550 of his after-tax money. And only saving his company £85.50 in corporation tax (£450 *0.19).
In a simplistic scenario the total tax paid (assuming he is a basic rate tax payer) is the PAYE on the salary to get him the £25,000 less the company tax saving and employer national insurance and would be around £8,364.50 (note the actual calculation is a bit more complex than this).
Car purchased through the company (not considering VAT):
Blue Star Ltd purchases through his company an electric car costing £25,000. The car has an electric range of 100 miles in CO2 emissions.
– The company saves corporation tax of £4750 = 19%*25000
Anthony uses the car personally and therefore receives a benefit in kind which will be taxable. Anthony is a basic rate taxpayer for the year in question. Because of the vehicles electric range of 100 miles in CO2 emissions, for the 2021-22 tax year the vehicle would incur a 4% benefit in kind (BiK) rate to Anthony.
– Anthony’s BiK is £1,000 = 25000*4%
– Because he is a basic rate tax payer, he will pay 20% personal income tax on the £1,000 Benefit in Kind. This will be a personal tax of £200 = 20%*1000
– The company pays NI (may be sheltered if get allowance) of £138
Impact on company – spends effectively £25,138 = £25,000 + £138 but saves corporation tax of £4,750.
Employee spends £200 in tax but saves paying £25,000 in after tax cash (which is effectively ~£30k pre-tax).
The total tax payable for the company and Anthony would be the national insurance and the benefit in kind tax which would be £338.
By using his company Anthony has reduced his overall tax by around £8,000. But, please be careful when VAT registered as this will make things a lot more complex.
How can SAIL help?
There are significantly more generous rates and allowances when you purchase an electric company vehicle rather than a normal vehicle which is heavily taxed.
If you are considering an electrical vehicle purchase through the company, SAIL can calculate what the corporation tax savings could look like as well as the impact to your personal tax when considering the Benefit in Kind.
Call us for a quick quote and let us see where we can save both you and your company tax.
It is also important to note that completing the P11d and the company’s P46(car) is the responsibility of the employer. Please speak to your SAIL advisor who can assist you with preparing these.