PCP EV through Business - Can I claim VAT?

sherbert1964

Hello all,

Apologies if this has been asked already, I did do a search but nothing came up quite fitting this question.

I'm looking at taking out a PCP on a new Tesla EV through my LTD company. My accountant has advised I should PCP rather than leasing so I can get the tax relief against my corporation tax bill, but can I also claim back 50% of the VAT on the car and monthly PCP payments or does this relief not apply to a PCP?

Furthermore, should I explore leasing over PCP, does one have intrinsic value over the other? So damn confusing and HMRC don't make it obvious either.

Any superstar car and business specialists out there, would love to get your two cents

Appreciated!

Jeremy535897

See https://www.taxexpert.co.uk/car-leasing-vat/

Grumpy_chap

sherbert1964 said:

Hello all,

Apologies if this has been asked already, I did do a search but nothing came up quite fitting this question.

I'm looking at taking out a PCP on a new Tesla EV through my LTD company. My accountant has advised I should PCP rather than leasing so I can get the tax relief against my corporation tax bill, but can I also claim back 50% of the VAT on the car and monthly PCP payments or does this relief not apply to a PCP?

Furthermore, should I explore leasing over PCP, does one have intrinsic value over the other? So damn confusing and HMRC don't make it obvious either.

Any superstar car and business specialists out there, would love to get your two cents

Appreciated!

These are all questions your Accountant should have been able to answer for you very easily.

Taking an EV as a company car is attractive because of the low BIK.

If you lease the car, then 50% of the VAT can be (usually) recovered (assuming you are VAT-registered, of course).  The lease costs are claimable as business costs as they arise and reduce corporation tax accordingly.

The alternative to lease is to buy the car. 
If the car is bought by the Ltd Co. (the invoice has to be made out to the company), then the company can claim 100% first-year write down.
The 100% first-year write down applies to brand new EV's only - a second-hand purchase can only apply the standard write-down rates.
There is no VAT recoverable on a company car that is purchased if there is any private use of the car permitted.

PCP is simply a form of financing the purchase of the car.
If you can pay for the car outright, that will be cheaper than finance and simpler for your accounting record purposes.
Tesla PCP rates are not outstandingly attractive and nor are there any incentives linked to the finance that you may find with other manufacturers.

Finally, how will you reimburse yourself for business mileage on the EV as a company car?  
You will no longer be able to claim 45 pence / 25 pence per mile.
You will most likley be claiming the AMAP rate for energy only, currently 9 pence per mile:
https://www.gov.uk/guidance/advisory-fuel-rates

The MSE questions also apply.
Are you buying this car just because of the tax benefits, or would you be buying the car anyway?
Are you buying a more expensive car because of the tax benefits?
Would you be better off overall with an older car that is not an EV company car?  (Either an older EV or an older ICE)
Would you be better off overall with a brand new, but much cheaper ICE?
Have you considered alternative EV's to TESLA?  The MG's are very good cars.

You also need to consider the timing of the purchase and the best price that can be achieved.
TESLA prices in June (quarter end) were better than they were in May and better than they are today.  Today's price is discounted against list - I suspect that by next weekend, the price will be list only.
There were some additional incentives in June that are now passed.
If you are able to monitor the market and wait, you may find the prices are more attractive again in September.  This is a gamble, though, as the price is all dynamic demand-supply balancing.
You may also find prices to be more favourable if you show flexibility for paint colour etc.

EDIT:  Another thought.
How long do you intend to keep the car?
What do you propose to do at the end of the PCP period?
If you buy the car, you can write down 100% as first year.  When you sell the car, the value returned to the business will inflate the bottom line and be subject to corporation tax in that period.
In the case of a PCP, if you buy the car at £40k, that's £10k deposit, then 48 payments of £400 equals £19k, then the final balloon payment is £20k.  If the car is simply returned at this point, that is £20k back onto the company profit in that period.

sherbert1964

Thank you @Grumpy_chap, this is incredibly insightful and a lot to unpack.

I'm selling my personal car (which is predominately a work car anyway to and from appts) so there is definitely a need to get a new vehicle.

I had only been looking at EV's because of the BIK benefit although to be honest any other car I would want if ICE would be a sports car of sorts carrying hefty BIK rates. A fast Tesla 3 or similar would be perfect, it's just weighing up the benefit of leasing versus buying.

Agreed that Tesla's PCP isn't great, it was a lot more competitive when I looked a few weeks ago. The same applies to Polestar, both quite hefty. The sensible choice looks to lease a Tesla 3 Dual Motor with 4k-ish upfront, and c. £450pm payments of which I can claim back 50% VAT. If I'm not mistaken I can also write down 100% of the install cost for an EV home charger plus the monthly payment represent enough expenditure to bring down profits to a decent level.

I accept paying some tax and I take a monthly dividend from the company so a PCP 100% write down at around £50,000 would wipe out most of company profits.

It's a tricky one.

What would you do if you were me?

For context I am sole director of my own very profitable profitable ltd co with low overheads turning over roughly £100,000 and profit around £60,000 - £80,000. I take a 12k salary and the remainder in dividends. I need to draw £3000-£4000 per month as dividend to cover mortgage etc.

Leasing strikes me as a glaringly obvious choice yet my accountant recommended to PCP for the tax relief

Grumpy_chap

sherbert1964 said:

What would you do if you were me?

I would consult my Accountant.

Based upon your description of your Ltd Co. I would buy outright for cash (from retained profits) rather than PCP.  After the salary you have taken plus the dividends drawn to maintain required standard of living, you describe still having £20k - £40k that is retained in the business each year.  If there is not that much, then make a Director's Loan to cover the shortfall and you can draw that back out subsequently without being subject to taxation.

Everyone's position is different, so you really must consult your Accountant. 

You are correct that the Tesla Business Leases from mid-June were more attractive than they are today.  My expectation is that the lease rates will be less favourable again by the end of July, perhaps even the end of this week (tomorrow) but then improve in September.  I expect the cash purchase prices will follow a similar pattern.  There is no reason why you should rely on my crystal ball.

The decision between lease and purchase comes down to personal preferences as much as being a purely commercial decision.

FWIW - my circumstances are similar (but not identical) to yours and I took delivery of my TM3 LR a week ago as outright purchase.  Lease was not attractive to me.  The lease deals on TMY back in December were unbeatable.

The main advice I'd give is to be flexible on colour etc when in the showroom to do the deal as the method to secure the most favourable outcome.