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Company Car Tax and Electric Vehicles

24 April 2018

Company car tax

Under the current rules, purchasing and owning a car via a corporate entity attracts a benefit in kind on the employee (director) who has use of the car. The company car tax calculation is based on the CO2 emissions of the car and the list price of the car when new (including options).

As an extreme example, a high emitting sports car would attract a benefit in kind maximum percentage of 37% which is applied to the list price of the car when new, say £50,000. This would result in a benefit in kind of £17,500, which you are then liable to pay tax on at your marginal rate. For a tax rate of 40%, this would result in a personal tax liability of £7,000 for every year the car is owned by the company and used by the director.

The company would also have to pay Class 1A national insurance on the benefit in kind at 13.8%, a further £2,415 in tax payable by the company every year.

Electric vehicles

The government has issued incentives for companies to buy low CO2 emitting or electric cars. As part of this, electric vehicles such as those made by Tesla, qualify for 100% First Year Allowance (FYA). The result of this is that the full cost price of the car will be deducted from your taxable profit in the year of purchase, resulting in a 19% tax saving. Traditionally cars do not qualify for Annual Investment Allowance (AIA) or FYA and therefore allowances would only be available at 8% or 18% per year.

The current benefit in kind on electric cars, including the Tesla, is 9%, rather than the 35% example above. The 9% would be applied to the list price, say £86,000, resulting in a benefit in kind of £7,740. For a higher rate taxpayer at 40% the tax due on this would be £3,096. There would also be Class 1A national insurance of roughly £1,068 due per year.

The benefit in kind rate for electric vehicles is increasing over the coming years, as shown in the table below:

Tax Year Benefit in Kind % Benefit in Kind Tax Amount Class 1A Total Tax
2015/16 5.00% £4,300.00 £1,720.00 £593.40 £2,313.40
2016/17 7.00% £6,020.00 £2,408.00 £830.76  £3,539.76
2017/18 9.00% £7,740.00 £3,096.00 £1,068.12  £4,551.12
2018/19 12.00% £10,320.00 £4,128.00 £1,424.16  £6,573.84
2019/20 16.00% £13,760.00 £5,504.00 £1,898.88  £8,090.88
2020/21 2.00% £1,720.00 £688.00 £237.36 £925.36

As shown above, from 2020/21 the rate is due to fall back down to 2% which will result in a tax saving. However, these amounts could be adjusted in future legislation.

Personal purchase

If you were to opt to purchase the vehicle personally you would need to pay out of personal cash reserves or take a dividend from the company. The tax on the dividend would be taxed at 32.5% as a higher rate taxpayer or 38.1% as an additional rate taxpayer.

Other taxes and considerations

  • No Road Tax
  • No London Congestion Charge
  • £5,000 government grant towards the purchase price
  • The VAT would not be reclaimable on the purchase
  • If the company purchases the car you are able to put the running costs through the business including insurance, servicing, MOT etc. saving on money needed to be withdrawn from the company.

We would normally advise that car purchases with a private use element are purchased privately. However, with the tax incentives available, purchasing an electric vehicle via the company may be an attractive option.

For further information or advice on company cars, please get in touch with Sam on 01903 234094 or email sam@starboxaccountants.com

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