With the price of fuel soaring and the government encouraging more people to consider greener modes of transport, we are being increasingly asked about buying or leasing electric cars through a personal company.
Here we provide a brief summary of how this may benefit you, but please note this advice only applies to businesses who trade as a limited company (not ordinary self employed and partnerships).
Ordinarily, it doesn’t make sense for business owners to operate their own car that they will use for business and private use, through a limited company. This is because of the high taxable benefit charge that applies to most cars, to tax the private use element.
However, the government are currently offering an incentive to encourage ownership of pure electric cars, which means for companies, there is currently a very low taxable benefit charge. Therefore, even after paying the taxable benefit charge and additional National Insurance on the car, there is likely to be an overall tax saving, after factoring in corporation tax relief on the cost of the car and running costs.
There are still downsides to consider though:
- The cost of electric cars is still relatively high compared to petrol cars, which means any tax saving may be wiped out by the extra purchase or lease costs.
- The low taxable benefit charge is currently only suggested to last until April 2025, after which time, we don’t know if the government will raise the charge, or to what extent. That could then totally negate any saving at that point.
However, for some people who are in the market for a new car at this time, it could still be something to consider, but we would say that you would probably fit one of the following categories:
- You are currently in the market for a new car.
- You are interested in the option of ‘going green’ and the price is less of an issue.
- You have surplus funds in your company, that to extract to buy a car privately, would incur additional taxes that could be avoided by buying a company vehicle instead.
It is quite a complex scenario and isn’t the correct option for everyone, but if the idea of a company electric car interests you, please ensure you discuss this with us first before you buy or lease one through the company, because it must be reported to HMRC immediately, and the benefit in kind taxes calculated.