Buy or lease an EV through my Ltd Company

mclovin73

Hello, would any of you incredibly knowledgeable folk be able to help..

In the last 6 months I have set up a ltd company and need a car, both personally and for business (don't currently own one), with an expected 1000 business / 4000 personal miles p.a.

My company t/over is an expected £100k p.a. with very low costs, anticipated Corp Tax @ £19k meaning company profits would be £80k, and the company could afford to buy a 40k EV outright, with the EV BIK rates meaning virtually no additional personal tax in next couple of years

I also don't need to take a salary from the business as I have another PAYE job that pays the mortgage etc.

I initially considered leasing but as the company can afford it, I'm now thinking why lease if you can buy? At this stage please excuse my ignorance as this is all brand new to me.

If the company buys the car, can I offset the full cost of the car through capital investment allowance, and if so over what period?

Is the full cost of the car offset against Corp Tax? i.e. a business expense reducing Corp Tax to zero?

How do I treat VAT part of the cost of the car?

Any guidance is welcome and will not be construed as professional financial advice.

Thanks!!!

macman

My understanding is that if the business purchases the car, and it's rated as zero emissions, you can offset the full purchase cost as a first year allowance. However, since in your case the vehicle will be used 80% for private mileage, that mileage will be seen as a benefit in kind and you will be taxed accordingly on it.
For most other vehicles, the write down allowance is 18%.
If you are VAT-rated, which you will be if t/o is £100K, then you can reclaim the VAT element if you lease it.
Your company accountant is much better placed as to the most tax-efficient way to structure things.

Pennywise

If eligible for 100% capital allowance, the cost comes off your profit, not the tax bill, so CT at 19% would be on £60k (ii.e. £100 less £40).  

No VAT claimable on a car purchase.  If leased you could claim 50% of the VAT on each monthly lease purchase, but then if leased, you don't claim capital allowances, just the lease costs (adjusted if necessary).

Grumpy_chap

The OP should probably engage the services of an Accountant to assist with the business finances generally, that would also give on-tap answers for this type of question, which is seemingly simple but has some twists and variances such as how the OP manages their personal remuneration.  I'll assume they do so in a manner that keeps basic rate tax, i.e. 20% income tax band.

IF the OP chooses to buy a car, and it is fully electric EV, then it most likely makes sense to do that as a company car.  The full cost can be set as first-year write-down. I understand that means when the EV is sold, the residual value returned to the Ltd Co will be profit and subject to corporation tax at that time.

In addition, the BIK is practically zero.  1% BIK for a £40k EV in 2021-22 equals £400 x 20% tax rate = £80

Assuming electric for charging is from the OP's home, then I understand that the advisory fuel rate for the business mileage is 4 pence per mile.  This means a tax-free claim from the OP's Ltd Co of £40 for the 1k business miles.  That's half the BIK back.

No VAT reclaimable on vehicle purchase once any personal use is permitted.



For a company purchase and a fully electric EV, lease is not likely to be as attractive an option as simply buying the car, particularly since the Ltd Co will have the cash available.  This is more finely balanced and warrants some proper figures as some VAT is reclaimable from lease but not purchase.  This is quite involved to get the full figures and an Accountant can set out the gross and net costs of both options easily.



Another consideration is whether the OP can use the EV for the primary PAYE employment, recovering mileage at 45 pence/mile (assuming that is the rate the employer pays).  That would make the EV very favourable.



With the very low mileage that the OP expects to do, 5k total per year, and being "money-saving", it likely works out more financially astute for both the OP's Ltd Co. and for the OP personally to use UBER and hire a car for longer journeys where UBER is not practical.



All the above is the boring "head" advice.  IF I were in the OP's position as set out and assuming no complexities that are not shared, I'd be going a little bit more "heart" and popping down to Tesla with my company cheque book and a grin from ear-to-ear.

mclovin73

macman said:

However, since in your case the vehicle will be used 80% for private mileage, that mileage will be seen as a benefit in kind and you will be taxed accordingly on it.

And am i right in thinking this tax is the 2021/22, 1% BIK for EVs at 0g/km, or is their a higher charge as the vehicle is used more for personal than business miles 

Grumpy_chap

mclovin73 said:

macman said:

However, since in your case the vehicle will be used 80% for private mileage, that mileage will be seen as a benefit in kind and you will be taxed accordingly on it.

And am i right in thinking this tax is the 2021/22, 1% BIK for EVs at 0g/km, or is their a higher charge as the vehicle is used more for personal than business miles 

Yes, company car BIK rates are 1% for 2021/22 and 2% next year (2022/23).  Then it, allegedly stays at 2%, but could change at any time the Government choose obviously:
https://www.tesla.com/en_GB/support/incentives#chapter5

The BIK is not affected by the proportion of personal / business use, even if 100% personal use.  There are extreme circumstances where BIK can be avoided if 100% business use, but that criteria will not be met in the case set out in the OP.

mclovin73

Grumpy_chap said:

All the above is the boring "head" advice.  IF I were in the OP's position as set out and assuming no complexities that are not shared, I'd be going a little bit more "heart" and popping down to Tesla with my company cheque book and a grin from ear-to-ear.

I like your style! This is close to my thinking on the matter also, while trying to be measured and prudent etc.

I've too many school pick ups to go down the Uber route; though I completely agree with your rationale and is exactly what I would advise anyone who does limited miles & without a school run to do. 

Grumpy_chap

You are being practical and prudent, opting for the sensible Model 3.
Never forget the opportunity to think about a mid-life crisis, though:
https://www.tesla.com/en_GB/roadster
I am, sadly, too young for a mid-life crisis.

mclovin73

Grumpy_chap said:

You are being practical and prudent, opting for the sensible Model 3.
Never forget the opportunity to think about a mid-life crisis, though:
 
I am, sadly, too young for a mid-life crisis.

Wow...that is a stunning piece of kit and seats 4, so that's the school run covered!!

But seriously stop...