This is a topic which is constantly cropping up with our clients, as electric cars become more commonplace and are reducing in price. The following is a very brief rundown on the topic, as
at October 2018.
There are two aspects to company cars:
- How they are treated for capital allowances
- How you are taxed on the benefit in kind
- Currently ( was supposed to end April 2018, but time has been extended to April 2021) the purchase of a new electric car entitles the company to claim 100% First Year Allowances. So if you buy a car for £30,000 the company will reduce its corporation tax liability by £5,700 ( 19% x £30,000). When you eventually sell the car, the company will pay tax on the proceeds.
The car must be new to obtain this tax treatment.
“Buy” can mean outright purchase using company cash, or an HP. With leases, only the lease payments achieve tax relief. “New” means delivery mileage only: a ex-demo does not count.
2. As an employee, you are taxed personally on the value of the benefit in kind. The tax is calculated on the new showroom value of the car. Any discounts or grants received (including the Government Grant) are ignored: you are taxed on the full list price, irrespective of what you pay.
The list price is multiplied by the applicable rate from the table below:
Company Car Tax BIK Rates 2017-21
Taking the example of a Nissan Leaf at £28,000:
- 2018-19 – you pay tax on £3,640 at your highest rate – so probably £1,456 tax to pay
- 2019-20 – you pay tax on £4,480 – £1,792 tax
- 2020-21 – tax on £560 – £224 ( Yes – it is planned to reduce in that year, but that could still change)
The company must pay Class 1a NIC at 13.8% pm the BIK value
- 2018-19 – Company pays Class 1a on £3,640 = £502
- 2019-20 – Company pays Class 1a on £4,480 = £618
- 2020-21 – Company pays Class 1a on £560 = £77
The costs of running the car are fully tax deductible by the company: insurance, repairs, car wash etc
These are the tax implications, but there are other considerations:
Some people (me included) still think that electric car prices are still too high. Although the tax breaks are good, I am not sure that they make up for the price differential between buying a basic run-around petrol car and an electric car. Eg: the equivalent size car to a Leaf would be (say) a Peugeot 208 5 door. That only costs about £14,000 to buy.
Not an easy decision. We are sitting on the side-line until the prices drop further. That is likely to happen when Tesla ramp up production of their Model 3, flooding the market with more electric cars and stimulating the demand as the charging infrastructure grows.
Certainly, when if the new tax regime kicks in as planned, there will be a huge surge in demand for electric company cars.
Watch this space.
We strongly advise you to seek appropriate advice before taking action on any of the points listed above.
If you are in any doubt, please call us for clarification.
About us: Leggate Associates Limited was formed by Andrew Leggate LL.B FCMA ACA CGMA who has over 35 years of tax and accountancy experience in industry and practice, and the practice is managed by Joanne Leggate FMAAT ATT. Our clients range from building subcontractors to multi-million pound concerns and high net worth individuals all over the UK. Please see our website www.leggateassociates.co.uk or follow @LeggateAssoc on Twitter for occasional updates.
© 2018 Leggate Associates Ltd