EV Discussion thread

CKhalvashi

Exiled_Tyke said:

CKhalvashi said:

Exiled_Tyke said:

CKhalvashi said:

Exiled_Tyke said:

I'm surprised a personal lease can work out better than a business one.  The personal lease is paid for out of after tax income (and if income hasn't been taken out as dividends there would also be the NI costs to consider as well).  The business lease both allows for CT and VAT deductions but (a relatively small) amount of benefit in kind.  For me (not VAT registered currently) I worked out that an EV would be cheaper through my business.

The Ioniq was purchased outright with a decent discount.

The car has cost me around 8p/mile all in, excluding depreciation. The reimbursement rate for business mileage covers around 65% of the miles the car has done. It comes down to a reasonably cheap car vs the 9p electricity rate on the same mileage.

If the car is worth more than about £12k (a quick search shows it probably is), I'm so far better off with personal ownership. The car should become 'cost neutral' at about 140k miles.

Sorry to be difficult but I genuinely don't understand this.  If I buy an EV through the company then I get to write the whole thing off against tax as a first year allowance.   The benefit in kind rate is 2%. So a £40k car would come out £800 a year. Let's say I'm a 40% tax payer (but this really doesn't matter just give different figure). So tax on the £800 would be £320 a year.

If I decide to buy the car personally then I need to take these funds out of the business.  The most cost effective way to do this is as dividends.  Our higher rate tax payer pays dividend tax at 33.75%. So to have £40k to spend on the car I first need to take £60k out of the business and pay £20k of income tax on this.  If we assume it's a small company paying tax at 19%. then to pay dividends of £60k the company needs to make profits of £75 and pay £15k tax.    End result I personally own the car but the total tax burden is £35k of tax so the car has efectively cost $75k of pre-tax income.  Whereas if the company buys the car then it costs the business £40k and I suffer a £320 income tax bill each year.

If i've got this wrong then I'm sorry (and I've wasted a huge amount of time writing this out).

(And this is not tax advice in any way shape or form, anybody making similar decisions needs to take advice from someone who knows better than me!)

You cannot claim mileage allowances (at 45p/25p) on a company car. These rates are tax free for business travel and a deductible expense for the company.

A £27k-ish, owned outright, car costing 8p/mile to run (including insurance, servicing, consumables and electricity) is better run through personally for someone driving about 2000 business miles a month (I was paid just over £8k last year tax free in mileage allowances that is an allowable expense for the company) with a cost of about £2.5k to run including private mileage but excluding depreciation. This years reimbursement will be a bit higher, but the costs also a bit higher.

At company car reimbursement rates, I'd be down overall, even more so after paying tax on the BIK, however small that would be.

To be driving 24k business miles a year is pretty unusual set of circumstances and won't apply to many but nevertheless I'll attempt to work through the figures. 

Your £27k BEV if bought through a company will cost a higher rate tax payer £216 in additional tax as a benefit in kind.

For higher rate tax payers I calculate that the total tax buden of this would be £23k if bought personally.   

The mileage allowance (45p and then 25p after 10k miles) is not an £8k benefit to the individual but rather represents a tax saving (taking money out of the business tax free as opposed to for example paying dividends.  I make this to be tax saving of £3,700 a year.  After the running costs of £1,900 (24k at 8p) then the benfit to the driver is £1,800 so not much compensation against the £23k. 

 Again I'll happily be corrected if I'm wrong but I calculate that this still doesn't work out favourably for personal ownership. 

I think you're viewing that as a CT/dividend tax saving of around £3k/year, but I take a the view that it's a tax free transfer of £6k from the company to me every year, after all that's money that wouldn't otherwise be in my pocket.

At about 54 months based on the purchase price (which was about £13k plus a Jag XE, I value the total transaction at around £27k) the car will be free at a zero residual value, but also there'll be no CT/dividend tax (about 50% combined in my case) to pay on the sale price so the zero net cost for me comes before this. I am committed contractually to spending some time once a month on certain client sites for the first year of the contracts as part of a venture, with these sites being scattered throughout various towns in 5 counties.

I think we're approaching the same equation differently, but also it's probably worth remembering that when the car was ordered the reimbursement rate for company EVs was about 4p/mile, although equally electricity was cheaper.

My car is an April 2021 model with 74,918 miles on it as of about an hour ago (probably 45k of those are business, my commute is about 85 miles round trip although I'm in the office only about 150 days last year), so my usage case may not be a 'normal' one, but it's always worth doing a second calculation.

That's about 90 miles a day, every day since the car was new (some days it's done 250+ with a top up charge somewhere in the middle, it's also done 900-ish miles to Poland once in each direction, some days it's not moved). For a business user that isn't unreasonable to me, which is why I mentioned to take it into consideration.

Exiled_Tyke

"I think you're viewing that as a CT/dividend tax saving of around £3k/year, but I take a the view that it's a tax free transfer of £6k from the company to me every year, after all that's money that wouldn't otherwise be in my pocket."

But it is the tax saving which is relevant. The original premise which we started with was for an individual with their own business. So eventually the money would be taken out of the business for the benefit of the director. (And this would be necessary if they are buying their own car). So for the purposes of this exercise it really is an issue of whether the funds come out of the business tax free or not, rather than the question of whether the funds are removed at all.

"At about 54 months based on the purchase price (which was about £13k plus a Jag XE, I value the total transaction at around £27k) the car will be free at a zero residual value, but also there'll be no CT/dividend tax (about 50% combined in my case) to pay on the sale price so the zero net cost for me comes before this"

I admit that I haven't speculated on the resale price of the vehicle and the tax consequences of that. However the relevant value of the calculation is not now £27k but the £40k total cost of the car. This is the amount that (over time) would have been taken out of the compay and paid to the director to purchase the £40k car. If we take the view that the £13k difference could also be a guess of the resale value of the car when the company/director disposes of it then my numbers above can still be used. 

I therefore stand by my calculations, with these assumptions:

1. the indvidual is a director of a small company and has the choice how to take funds out of the business;

2. the car is a BEV (not a hybrid or ICE;

3. the car is purchased and not leased;

then my conclusion (and again apologies if there are errors) is that the better decision currently is to buy the car through the company, claim the tax allowances and have the director suffer the BIK.  I believe you are worse off buying the car yourself.

CKhalvashi

Exiled_Tyke said:

"I think you're viewing that as a CT/dividend tax saving of around £3k/year, but I take a the view that it's a tax free transfer of £6k from the company to me every year, after all that's money that wouldn't otherwise be in my pocket."

But it is the tax saving which is relevant. The original premise which we started with was for an individual with their own business. So eventually the money would be taken out of the business for the benefit of the director. (And this would be necessary if they are buying their own car). So for the purposes of this exercise it really is an issue of whether the funds come out of the business tax free or not, rather than the question of whether the funds are removed at all.

"At about 54 months based on the purchase price (which was about £13k plus a Jag XE, I value the total transaction at around £27k) the car will be free at a zero residual value, but also there'll be no CT/dividend tax (about 50% combined in my case) to pay on the sale price so the zero net cost for me comes before this"

I admit that I haven't speculated on the resale price of the vehicle and the tax consequences of that. However the relevant value of the calculation is not now £27k but the £40k total cost of the car. This is the amount that (over time) would have been taken out of the compay and paid to the director to purchase the £40k car. If we take the view that the £13k difference could also be a guess of the resale value of the car when the company/director disposes of it then my numbers above can still be used. 

I therefore stand by my calculations, with these assumptions:

1. the indvidual is a director of a small company and has the choice how to take funds out of the business;

2. the car is a BEV (not a hybrid or ICE;

3. the car is purchased and not leased;

then my conclusion (and again apologies if there are errors) is that the better decision currently is to buy the car through the company, claim the tax allowances and have the director suffer the BIK.  I believe you are worse off buying the car yourself.

I don't believe I'm worse off overall, but it's going to be circumstance specific anyway (mileage, electricity costs etc).

Those 3 circumstances (legally) fit with me, but our profits are likely to be in excess of £50k (but not as much as £300k) for the term of ownership of the car. All expenses are through companies I either control in full or jointly, so count as the same group for tax purposes.

The tax saving is relevant, but the usage case effectively comes to £40k of expenses paid by the company over 5 years (roughly the total cost, also roughly the amount reimbursed via mileage allowances) with me owning the asset personally, with whatever the car is worth at the end being mine outside of the tax system vs £40k of expenses for the company over 5 years with a residual asset that is still inside the tax system (worth say £10k), to be taxed at around 50% assuming CT and dividend tax, where I'm taxed personally (£600-ish) over that period and the company has paid NICs on this.

I also stand by my calculations in this specific case.

Exiled_Tyke

I've just taken this to CTA tutor teaching in the next room to me to check it out. The conclusion is that the £20 odd thousand in tax paid by the company an the indivual by 'giving' them the funds to buy their own car will never be compensated for by the tax free expenses paid to employee.  Sorry but the numbers really don't stack up in these circumstances. 

CKhalvashi

Exiled_Tyke said:

I've just taken this to CTA tutor teaching in the next room to me to check it out. The conclusion is that the £20 odd thousand in tax paid by the company an the indivual by 'giving' them the funds to buy their own car will never be compensated for by the tax free expenses paid to employee.  Sorry but the numbers really don't stack up in these circumstances. 

Sorry, I promise I don't look for arguments.

Our fleet manager has just gone through figures with me (she's opposite me at the moment for questions).

Run 25k miles at 45/25p on 25k miles paid tax free from the company to me at the following;
4.6p/mi at current home charging rates/average usage for electricity
2p/mi for servicing (about £1500 over 75k miles including 2 sets of tires, it's just been serviced with new front tires last week)
1.2p/mi for insurance (£422.18 covering 40k miles including 30k business, fully comp, including SPDC for OH)

I count that as £8250, with £1950 of expenses. On a £27k transaction value, I work that out at a 23.3% rate of return, tax free (allowable expense for the company, not taxable for me as an expense).

Exiled_Tyke

Thanks. I respect you too and am only trying to get to the bottom of this.  I agree with your calculations although I would argue there is no rate of return.  My point merely is this, you buying the £40k car has created a tax bill of £35k.  Essentially the company has made £75k to then pay you a dividend of £60,750.  You've then paid dividend tax of £20k to get the £40k to buy the car. (Admittedly this has been in stages as some it relates to the previous car).   If you'd have got the company to buy the car for £40k there would still be £35k left in the business to use however you choose (pay, dividends, pension etc.).  The fact that you get to take £8k a year out of the business tax free. Thereby saving you £3k in tax a year (but still needs to contribute to running expenses) pales into insignificance against this massive tax break on the company purchase.

Or to put it another way. If the company buys the car you get to use a £40k asset pretty much  tax free (for you and the company).   If you buy the car you lose £35k tax up front but then benefit from £6k a year.

CKhalvashi

Exiled_Tyke said:

Thanks. I respect you too and am only trying to get to the bottom of this.  I agree with your calculations although I would argue there is no rate of return.  My point merely is this, you buying the £40k car has created a tax bill of £35k.  Essentially the company has made £75k to then pay you a dividend of £60,750.  You've then paid dividend tax of £20k to get the £40k to buy the car. (Admittedly this has been in stages as some it relates to the previous car).   If you'd have got the company to buy the car for £40k there would still be £35k left in the business to use however you choose (pay, dividends, pension etc.).  The fact that you get to take £8k a year out of the business tax free. Thereby saving you £3k in tax a year (but still needs to contribute to running expenses) pales into insignificance against this massive tax break on the company purchase.

Or to put it another way. If the company buys the car you get to use a £40k asset pretty much  tax free (for you and the company).   If you buy the car you lose £35k tax up front but then benefit from £6k a year.

The company gets the money back through, although through a longer period.

That would be a reasonable calculation for the upfront cost, however the £8k/year is an allowable business expense for CT purposes (saving for arguments sake £2.5k/year) and tax free for me (saving again for arguments sake another £2.5k after the CT). There is no BIK tax to pay on the car either.

My tax rate is close enough to 25% CT and 33.75% on the residual 75-ish%.

There are savings to be made over the long term with this strategy, it's not an upfront tax break.

I've just PM'd you the details. I don't really want to share details of my exact income for last year over a public forum for obvious reasons.

1961Nick

CKhalvashi said:

Exiled_Tyke said:

I've just taken this to CTA tutor teaching in the next room to me to check it out. The conclusion is that the £20 odd thousand in tax paid by the company an the indivual by 'giving' them the funds to buy their own car will never be compensated for by the tax free expenses paid to employee.  Sorry but the numbers really don't stack up in these circumstances. 

Sorry, I promise I don't look for arguments.

Our fleet manager has just gone through figures with me (she's opposite me at the moment for questions).

Run 25k miles at 45/25p on 25k miles paid tax free from the company to me at the following;
4.6p/mi at current home charging rates/average usage for electricity
2p/mi for servicing (about £1500 over 75k miles including 2 sets of tires, it's just been serviced with new front tires last week)
1.2p/mi for insurance (£422.18 covering 40k miles including 30k business, fully comp, including SPDC for OH)

I count that as £8250, with £1950 of expenses. On a £27k transaction value, I work that out at a 23.3% rate of return, tax free (allowable expense for the company, not taxable for me as an expense).

You appear to be claiming business mileage for your home to office use - 12750 miles pa. That's classed as personal use & should be declared on your P11D as a BIK.

Exiled_Tyke

I don't think that's quite fair.  There's nothing to indicate there is normal commuting in these figures.  Running your own business it is quite conveivable to work from home and all mileage is to clients.   I don't think we are in a position to make such assumptions.   I still can't find a way that a personal purchase is advantageous though.

JKenH

JKenH said:

VW seem to be in real trouble.

VW electric car sales “fall to zero” as Tesla and China EV makers win price war

Volkswagen’s domestic sales of electric cars in Germany are far behind the company’s plans, insiders told business daily Handelsblatt.

Executives at some VW plants said demand for particular battery-electric models had fallen “to zero,” while car dealers pointed to a general reluctance of European consumers to buy electric cars, blaming subsidy cuts, high inflation and comparatively high prices.

With reference to price cuts by US rival Tesla, company insiders told the newspaper “the development is fatal,” adding there was also a “clear fall in orders” for combustion models. 

https://thedriven.io/2023/07/12/vw-electric-car-sales-fall-to-zero-as-tesla-and-china-ev-makers-win-price-war/

Hard to reconcile the above story with the news item below.

Volkswagen Group increases all-electric deliveries by around 50 percent in the first half year

https://www.automotiveworld.com/news-releases/volkswagen-group-increases-all-electric-deliveries-by-around-50-percent-in-the-first-half-year/