Limited Company Director - Salary Sacrifice Electric Car

SkinnyDogg

Hello,
We are trying to navigate the most tax efficient method to get an electric car through the business. As it stands we pay ourselves up to the personal allowance monthly to ensure there is no tax via PAYE. The rest of our income is via dividend to the maximum before it incurs higher rate tax. As opposed to taking additional dividend and being taxed at the higher rate we would prefer to use the company to pay for electric cars. Would this be the most tax efficient way to proceed?
Find the lease deal that we want, let's say £400 a month for example. Increase monthly pay by £400 a month, but use salary sacrifice to pay for the lease. Would this mean that there would be no tax due via PAYE and there would be no impact on tax payable on the dividends?
Any advice much appreciated.
Thanks.

Petriix

An alternative (depending on the cash reserves of the business) is to buy the car outright (in the name of the business) and allow personal use. Either way the tax isn't zero as there's a BIK of (currently) 2% of the P11D value of the vehicle.

Probably better to talk to your accountant as there are other considerations. 

Grumpy_chap

SkinnyDogg said:

Hello,
We are trying to navigate the most tax efficient method to get an electric car through the business. As it stands we pay ourselves up to the personal allowance monthly to ensure there is no tax via PAYE. The rest of our income is via dividend to the maximum before it incurs higher rate tax. As opposed to taking additional dividend and being taxed at the higher rate we would prefer to use the company to pay for electric cars. Would this be the most tax efficient way to proceed?
Find the lease deal that we want, let's say £400 a month for example. Increase monthly pay by £400 a month, but use salary sacrifice to pay for the lease. Would this mean that there would be no tax due via PAYE and there would be no impact on tax payable on the dividends?
Any advice much appreciated.
Thanks.

As mentioned above, buying the car outright may be beneficial because of the favourable right-down rules on EV.

Is the Ltd Co. VAT-registered?

You are over-complicating things by suggesting to increase basic pay but then use SS, given this is a one-person (or two-person) owner-Director Ltd Co.

Also as above, take advice from your Accountant.

SkinnyDogg

Thanks for the replies. The company is VAT registered. I will see what the accountant suggests. Thanks

DullGreyGuy

Why bother increasing the salary to then sacrifice it? Just have it as a straight company car which would make the lease payments an operating cost off the bottom line before corporation tax.

As you say you are a basic tax payer then you'd have a BIK of 20% of 2% of its P11D value to pay personally. Note that the percentage for electric cars has been increasing (last year it was 1%) so will still be great in comparison to a petrol car but maybe not as low tax as it is today. 

Are you on flat rate VAT? Certainly worth doing the sums on if its worth sticking to that or moving to traditional VAT to recover 50% of the VAT on the lease payments if you are. Or let your accountant advise. 

billy2shots

Petriix said:

An alternative (depending on the cash reserves of the business) is to buy the car outright (in the name of the business) and allow personal use. Either way the tax isn't zero as there's a BIK of (currently) 2% of the P11D value of the vehicle.

Probably better to talk to your accountant as there are other considerations. 

This is something I have done this year. The cost of the EV is fully written off against this year's corp tax as it's seen as a business expense. 

Happy to pay 2% BIC for the privilege. 

I looked at the alternative ways to fund but it didn't make sense. 

Just bear in mind, the ltd company owns the car (make sure you are the registered keeper) so when the car is sold, there will be tax to pay so the saving is the difference in tax between what you bought at and what you sold at. 

You can can have the business pay for a charger at work and home and the business pays insurance, servicing and maintenance etc. Charging at work also goes on my work electric bill so it saves money again against charging at he out of personal taxed money. 

sheannjam

What does “fully written off” mean?
If they put themselves in the 40% tax bracket surely they’d be saving more as they’d be saving at 40% plus NI whereas buying through the company they’d only save at 19% and wouldn’t own the car? I really struggle understanding tax.

silvercar

Insurance on electric cars is high at the moment, I would look at a lease that includes insurance.

mury88

SkinnyDogg said:

Hello,
We are trying to navigate the most tax efficient method to get an electric car through the business. As it stands we pay ourselves up to the personal allowance monthly to ensure there is no tax via PAYE. The rest of our income is via dividend to the maximum before it incurs higher rate tax. As opposed to taking additional dividend and being taxed at the higher rate we would prefer to use the company to pay for electric cars. Would this be the most tax efficient way to proceed?
Find the lease deal that we want, let's say £400 a month for example. Increase monthly pay by £400 a month, but use salary sacrifice to pay for the lease. Would this mean that there would be no tax due via PAYE and there would be no impact on tax payable on the dividends?
Any advice much appreciated.
Thanks.

Hi SkinnyDogg, 

I am currently in the same boat as you are. 

Really interested on how you moved forward. Thanks

Grumpy_chap

mury88 said:

SkinnyDogg said:

Hello,
We are trying to navigate the most tax efficient method to get an electric car through the business. As it stands we pay ourselves up to the personal allowance monthly to ensure there is no tax via PAYE. The rest of our income is via dividend to the maximum before it incurs higher rate tax. As opposed to taking additional dividend and being taxed at the higher rate we would prefer to use the company to pay for electric cars. Would this be the most tax efficient way to proceed?
Find the lease deal that we want, let's say £400 a month for example. Increase monthly pay by £400 a month, but use salary sacrifice to pay for the lease. Would this mean that there would be no tax due via PAYE and there would be no impact on tax payable on the dividends?
Any advice much appreciated.
Thanks.

Hi SkinnyDogg, 

I am currently in the same boat as you are. 

Really interested on how you moved forward. Thanks

You might be better with your own thread - this thread is from a year back.
Most of the questions asked of the OP in this thread will need to be considered to allow comment on your position.
Remember the VED rules change shortly.

silvercar

Unless the rules are different for companies with only 1 employee, the standard most efficient way is have the company own and lease the car. This reduces the company profits and so reduces its corporation tax. You as an individual pay benefit in kind (BIK). The beauty of the whole scheme is that BIK on electric cars is at a reduced rate and so you have little extra tax to pay. To gain the most benefit from the scheme choose one that includes maintenance and insurance within the leasing costs.

The downside of the scheme is that leasing companies are well aware of the attractiveness of the schemes so often charge a hefty premium. Sometimes it can be worthwhile researching what leasing a car privately would cost. I know Tesla itself have some good 0% deals sometimes.