Tax benefits of buying electric vehicles through your company

There is so much more choice now with electric vehicles, vehicle technology improving, and tax benefits of buying electric vehicles through company being very attractive, is now the time for you to consider buying an electric car via your company?

As a business owner, it could make financial sense, as well as being a positive move for the environment to buy an electric vehicle through your company. Not only are there tax benefits of electric cars but also running and servicing cost reductions that can be achieved.

This blog covers the tax benefits of owning an electric vehicle for you, your business, and your employees.

Can I buy an electric vehicle through my company?

The simple answer is yes, you can and there are clear tax benefits of purchasing or leasing an electric vehicle directly through your business.

Bear in mind that if you buy or lease a car out of your own after-tax earnings (your director’s salary or your dividends), you will have already paid tax on those earnings.

Things to consider when buying an electric vehicle

To accurately determine the tax impact when buying an electric car, you need to consider the following:

• The car is new/unused or second hand.
• The CO2 emissions (if not fully electric).
• The stated electric range according to Vehicle Certification Agency (needed if the vehicle has CO2 emissions between 1-50g/km)
• The FULL retail price of the car including any extras.

The above factors will affect the tax perspective of purchasing an electric car, so ensure you are fully aware and speak to a tax professional like dns accountants for advice before you purchase.

What are the tax advantages of putting an electric car through the business?

There are tax advantages when you buy or lease a car through the business, these are as follows:

Corporation tax savings

The corporation tax for the company in the year of purchase, will be reduced in line with the capital allowance that can be claimed.

The company will also be able to get corporation tax relief on the costs of maintaining and insuring the vehicle.

However, when the car is sold this will give rise to a corporation tax rate charge as the sale proceeds will be treated as taxable income.

If the vehicle is leased by the Company, the monthly rentals will be included in the profit and loss account as an expense, which reduces the company’s profit and corporation tax for the year.

If the vehicle is obtained under a Hire Purchase agreement, not only will the company benefit from the 100% first year allowance but will also make corporation tax savings on the interest on the monthly payments.

Capital allowances benefits for electric vehicles

You can claim capital allowances on cars you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax.

Businesses can claim the full cost of a zero-emission (0g/km) electric vehicle, in the form of a 100% first year allowance (FYA), against the profits of the year of purchase.

The capital allowance can be claimed if the company outright purchases the vehicle, or via a hire purchase agreement. However if the vehicle is leased under an agreement meaning the company doesn’t own the vehicle, then the capital allowance cannot be claimed.

The car must be purchased new and unused however, there are no restrictions on the value of the vehicle.

Commercial vehicles already qualify for 100% allowances under the Annual Investment

VAT

Under current law, an electric vehicle will still be viewed as a car for VAT purposes. Therefore, VAT is not recoverable on purchase, unless it can be demonstrated that the car is only available and used solely for business purposes. In practice this is very difficult to achieve.

The same VAT recovery rules also apply for leasing purposes with 50% VAT recovery on the leasing charge available. Full VAT recovery, subject to the usual partial exemption and business use tests, is available on ongoing maintenance of leased cars.

Electric charging points and charging costs tax advantages

Small-to-medium-sized limited companies can get grants to install electric car charging points in the car parks of their business premises. Installers claim the grant on behalf of their customers.

The EV infrastructure grant for staff and fleets is for small-to-medium-sized businesses in the UK.

The grant covers up to 75% of the cost of installing the infrastructure needed for charge points to operate and for future chargepoints to be installed, as well as the cost of any charge points installed. There is a limit of £15,000 per grant.

You can get up to:

• £350 per charge point socket installed
• £500 per parking space enabled with supporting infrastructure

Each parking space claimed must be associated with a unique charge point socket. The socket must be associated with an installed charge point or one that will be installed at a future connection location.

The installed infrastructure must support a minimum of 5 parking spaces with at least one working charge point.

Plug in car grant

Some types of low-emission vehicles are eligible for a grant from the government, so that you can buy them more cheaply.

You do not apply for the grant. The seller includes it as a discount in the purchase price.

Only vehicles that have been approved by the government are eligible.

The discount you can get depends on the type of vehicle.

The types of eligible vehicles are:

• Wheelchair accessible vehicles
• Motorcycles and mopeds
• Small and large vans
• Small and large trucks
• Taxis

VAT

Under current law, an electric vehicle will still be viewed as a car for VAT purposes. Therefore, VAT is not recoverable on purchase, unless it can be demonstrated that the car is only available and used solely for business purposes. In practice this is very difficult to achieve.

The same VAT recovery rules also apply for leasing purposes with 50% VAT recovery on the leasing charge available. Full VAT recovery, subject to the usual partial exemption and business use tests, is available on ongoing maintenance of leased cars.

Employee position for electric vehicles

Benefit in kind on electric cars

The percentage of list price of a company car which is taxed as a benefit is determined by the CO2 emissions of the vehicle. For 2023/24, electric cars (with zero emissions - 0g/km) are taxed at just 2% of the list price. This rate will remain for tax year 2024/25 also.

Where the employer pays for the cost of charging the company-provided electric vehicle there is no taxable fuel benefit for the driver, as electricity is not classified as a fuel for the car or van benefit regulations.

Where the company allows employees to charge their own electric vehicles at the workplace, there is no taxable benefit for the provision of that free electricity.

For this tax exemption to apply, the charging facilities must be provided at or near the workplace, which is the same requirement that applies to tax-free workplace parking. This tax exemption does not apply if the employer reimburses the costs of charging the employee’s own vehicle away from the workplace, such as at a motorway service station.

The employer can further pay for installing an electric vehicle charging point at the employees home without triggering BIK charge.

The employer may reimburse the employee where the employee pays for the electricity to power it, either from their domestic supply or by charging at a roadside station. The employer can pay the company car driver 4p per mile, to reimburse them for the cost of the electricity used for business journeys with no tax implications. This rate only applies to company-owned electric cars, not to private vehicles.

Salary sacrifice

Where an employee has a car provided under salary sacrifice, the benefit is valued as the higher of the amount of salary given up or the taxable benefit. However, the optional remuneration rules do not apply if the company car has CO2 emissions of less than 75g/km.

Therefore, the employee can enter into a salary sacrifice arrangement to get an electric car as a perk. The key benefit for the employee is - no income tax and employee national insurance contributions on the salary forgone. For the employer, there is no employers national insurance contributions payable as salary sacrifice is exempt.

Summary

Petrol and diesel cars are becoming less attractive from a tax and running cost point of view now for company owners. The government continue to offer tax incentives on electric vehicles to encourage people to switch.

There are some clear company tax saving advantages of purchasing an electric car through your limited company such as a corporation tax saving, capital gains benefits

There are still some other things to consider before you purchase an electric vehicle through your company and that is the types of journeys you undertake, the mileage range on a single battery charge, time needed to charge the car, and finding suitable charging points.

However, there are many benefits including electric cars being better for the environment, lower running costs, lower maintenance because of less moving parts and better resale values, and the tax benefits can be substantial.

If you want advice on purchasing or leasing electric cars and vehicles, then contact dns and book a call.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.