Electric Cars and Limited Company - What You Need To Know
I have had a few requests lately for advice on purchasing an electric car as a limited company and I thought I’d do a blog about it to help our clients understand.
Historically, buying a car through your limited company was a NO NO, because of the additional benefit in kind tax that you will have to pay on the personal use element.
But because of electric cars and the benefit of using them, HMRC has given us a bit of slack. With the government’s push to electric vehicles, there is an opportunity to buy zero emissions, fully electric and brand-new car and even if you use it for private purposes as well, the fringe benefit is small and manageable.
Let’s start at the basics - A company car is a car owned by the business and it is provided to the employee to do their job i.e., drive to clients and perform their duties. An employee includes directors of the business.
There is an expectation that a company car can be used for personal use and because of this, there will be both a tax and national insurance charge on the calculated benefit of using a company asset for personal use.
NB: Remember for HMRC purposes your usual commute between home and office is counted as personal rather than business travel.
If a car is branded, will this impact the benefit in kind tax?
No, it won’t. You will still need to pay benefit in kind tax on the private use of the vehicle, unless it is a pool car that is used by a group of employees only for business purposes. Even if a car is heavily branded from the front to the back, the vehicle is still seen as a car for HMRC purposes, and any private or personal usage will be taxed accordingly.
When I thought about HMRC’s views on this, it made sense. If I go to Sainsbury’s with my branded vehicle, I am still doing a personal shop with a company car. Even if my car provides advertisement during my shop, there is no way that HMRC can know that or calculate a value to the business for that exposure.
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 along with any extras
This will guide you through making the right decision for you. If you have the above information, I can also assist you in calculating the benefit in kind tax and national insurance contributions.
The tax charge on a company car is worked out based on the CO2 emissions and the original cost price of the car. The employer must pay the National Insurance on the taxable value as well. The taxable value is worked out in the same way but the NI rate of 13.8% applied.
The employer can also claim capital allowance (not annual investment allowance as cars don’t qualify for this).
HMRC views cars as ‘suitable for private use, that most people use privately, and which are not built for transporting goods. Vans, Lorries, Trucks and Motorcycles are not seen as cars and annual investment allowance can be used to reduce your tax in year one.
Electric cars will also qualify for First year allowance in the company’s tax return which means that you can claim back the full value of the car in the first year. This will decrease the company’s corporation tax.
Here is a summary:
|
Description |
What you can claim |
|
New
and unused, CO2 emissions are 0g/km (or car is electric) |
First
year allowances |
|
New
and unused, CO2 emissions are 50g/km or less (or car is electric) |
Main
rate allowances – 18% of the value of the car |
|
Second
hand, CO2 emissions are 50g/km or less (or car is electric) |
Main
rate allowances – 18% of the value of the car |
|
New
or second hand, CO2 emissions are over 50g/km |
Special
rate allowances – 6% of the value of the car |
You might also have to adjust the capital allowance you can claim by the % personal use which will decrease the business’s tax allowance.
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.
VAT treatment on the purchase of the car is not great. To reclaim the VAT on any car, it needs to be used exclusively for business.
NB: 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% additional cost on your vehicle, so you need to balance this with your company tax savings.
There are some instances where VAT can be claimed on the purchase of a vehicle. Vans qualify. There are lots of rules around claiming VAT back on cars, please shout and ask if you are unsure.
What does the company need to do to comply?
The company will have some statutory requirements to complete annually for the National Insurance payment:
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
Benefit in Kind (BiK as it is known by HMRC) 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.
There is also a handy calculator on HMRC’s website
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A fully electric car with zero emissions and a retail price of £30,000 would therefore have no BiK of £300 for 21/22 and £600 for 22/23. These figures would then be taxed 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.
So, if you are a company director, the following things will have to be considered:
Personal Benefit in Kind Tax – This will decrease the monthly net pay that you receive personally.
National Insurance payable by the Employer – This will have a cashflow implication for the business.
The capital allowance on the car that can be claimed – and corporation tax relief obtained
The VAT implications – if the car is subject to any private use, then no VAT can be claimed back – This might influence your cashflow
Additional costs associated with having the assets i.e., insurance that might impact your cashflow for the business
Reporting requirements i.e., travel log book, P11D’s and other forms
As with so many tax-related matters, this is all tends to be a bit complex. Hopefully this will help you understand the ins and outs of company electric cars, however if you wish to discuss your individual circumstances, please get in touch with us at Anlo.