In the era of sustainability and innovation, electric vehicles (EVs) have taken the automotive industry by storm. 

As individuals and businesses alike strive to reduce their carbon footprint and embrace cutting-edge technology. Whether you're a small startup or an established enterprise, understanding the intricacies of acquiring an EV under your company's name can bring forth financial, environmental, and operational advantages. 

A limited company can purchase an electric vehicle.  The tax savings of purchasing the vehicle through the limited company versus taking a dividend and purchasing it yourself can be significant, as shown in the example below:

Example of purchasing a £30000 electric vehicle through the limited company:

The below example is based on the limited company being subject to 19% corporation tax, and the individual being subject to 8.75% dividend tax:

If you were to take a dividend from the company and purchase the vehicle yourself, corporation tax and dividend tax would look like the below:

Need to make a £30000 profit (assuming all taxed at the lower rate of 19% corporation tax)

Corporation tax would be £5700

This would leave an available dividend of £24300 (£30000 - £5700 = £24300)

Dividend tax would be £2126.25 (assuming all taxed at 8.75% Basic rate) 

This would leave a net cashflow available of £22173.75 to invest in the electric vehicle.

The total corporation tax and dividend tax suffered would be:

£5700 corporation tax

£2126.25 dividend tax

£7826.25 total tax suffered, even after assuming all taxes are paid at the lower rates available.

If the company were to buy the car as a company vehicle the £30000 cost would be an expense to the company.  Assuming this is a brand new vehicle (and not second hand) and you are claiming the full cost of the vehicle in the first year of purchase the overall tax savings would be £7826.25.

Note:

This calculation would change if your limited company might fall into a higher rate of corporation tax in later years, or you were a higher rate taxpayer.  In this case we would look at the benefits of claiming the cost of the vehicle all in the year of purchase versus spreading the cost out over a number of years.

What will the tax implications be if I use the company car for personal use?

Whenever a company purchases a vehicle which is then used by Directors or staff for private journeys there is ‘benefit in kind’ tax.  A benefit in kind tax is a tax on the financial value of the benefit you have received.  The benefit in kind value is worked out by taking the list price of the vehicle and multiplying it by the chargeable percentage.  For a petrol car a chargeable percentage could be as much as 15%.  For an electric vehicle for the period 2023/2024 the chargeable percentage of the benefit in kind is 2%.

Will there be any tax implications if the limited company sells the vehicle later?

Unlike a personal car that will not be subject to capital gains tax charge when you sell the vehicle, as long as the vehicle is your own personal car, limited companies do not get this allowance.

Assuming the total value of the cost of the car has been claimed against corporation tax, any sale value of the car will also be subject to corporation tax. If we take our example from before and assume an electric vehicle at a cost of £30000 was claimed as a cost in total in the year of purchase, and later the car is sold for £17000:

Cost of the vehicle claimed against tax was £30000

The sale price when sold was £17000

Therefore, the true cost of the car was £13000 (£30000 cost - £17000 sold = £13000 actual net cost)

In this example you would pay corporation tax on the £17000 sale income of the car.

If you sold the same car but for £10000, corporation tax would be payable on the £10000.

Note:

If it was more beneficial for you to claim the cost of the car over multiple years as mentioned before, the value of corporation tax payable on the sale would be lower if you had not yet claimed the full value of the car as a cost.  

Do you need some extra advice?

However, before embarking on this journey, it's essential to conduct thorough research, consult financial and legal experts, and weigh the pros and cons based on your company's unique circumstances. From understanding the tax implications to exploring available grants and incentives, careful planning will ensure a smooth transition to electric vehicles that align with your company's goals.

If you need extra advice or guidance from Accountants in Stafford, please get in touch and we will light your way.