Limited Company Director - Electric Car Purchase

My wife and I have a nearly 5 year old limited company and our personal vehicle is on a PCP agreement ending in January. We are exploring the possibilty of switching to an electric vehicle and doing so potentailly via a lease through the business - either a PCP in the business name or BCH. 

As Directors, we have excellent personal credit scores but struggle on the affordability side when considering finance due being set up salary and income wise for tax efficiency. We might consider making a PCP application for a new vehicle anyway but we have been directed to consider a purchase through the business for an electric vehicle based on the lower BIK and ability to claim back some of the VAT (there will be personal use of the vehicle). The thinking is also that the business might find it easier to secure a finance agreement than we would personally.

We don't want to burn through a load of hard searches either personally or on the business though so before making any applications wondered if anyone has been in a similar position and could share their experiences? Applying for finance is so hit and miss and we want to make sure that if we do proceed we are properly set up to maximise our chances for success. On the business side we are a small business but we've experienced consistent YOY growth over the last 5 years of 50%+ although as with many younger business our profit levels have been lower by virtue of our continued reinvestment towards growth. Our accounts are healthy though - it's just we don't know what lenders are going to be looking for here in particular. I should say that we sought some funding earlier this year and were approved and received finance from a couple of providers but did get rejected from a couple too.

Any advice would be appreciated.

Comments

  • My advice would be first talk to your accountant and second and perhaps most importantly to consider the wisdom of either buying an expensive depreciating asset that will lose 40% of it's value in three years, or taking on a large monthly cost that gives you nothing at the end of the lease period, even more so if it is a finance option with balloon payments. The economic headwinds are not great at the moment, it would make far more sense to buy a second hand vehicle for a fraction of the cost (which could still potentially be an EV) and benefit from the lower cost and lack of depreciation. 
  • Grumpy_chap
    Grumpy_chap Posts: 14,384
    First Anniversary First Post Name Dropper Combo Breaker
    Forumite
    edited 15 November 2023 at 1:32PM
    JamesLD said:
    My wife and I have a nearly 5 year old limited company and our personal vehicle is on a PCP agreement ending in January. We are exploring the possibilty of switching to an electric vehicle and doing so potentailly via a lease through the business - either a PCP in the business name or BCH. 

    As Directors, we have excellent personal credit scores but struggle on the affordability side when considering finance due being set up salary and income wise for tax efficiency. We might consider making a PCP application for a new vehicle anyway but we have been directed to consider a purchase through the business for an electric vehicle based on the lower BIK and ability to claim back some of the VAT (there will be personal use of the vehicle). The thinking is also that the business might find it easier to secure a finance agreement than we would personally.

    We don't want to burn through a load of hard searches either personally or on the business though so before making any applications wondered if anyone has been in a similar position and could share their experiences? Applying for finance is so hit and miss and we want to make sure that if we do proceed we are properly set up to maximise our chances for success. On the business side we are a small business but we've experienced consistent YOY growth over the last 5 years of 50%+ although as with many younger business our profit levels have been lower by virtue of our continued reinvestment towards growth. Our accounts are healthy though - it's just we don't know what lenders are going to be looking for here in particular. I should say that we sought some funding earlier this year and were approved and received finance from a couple of providers but did get rejected from a couple too.

    Any advice would be appreciated.
    You need to take advice from your Accountant.

    If you purchase a vehicle through the Ltd Co, there is no input VAT reclaimable as you will have personal use of the vehicle.  

    To take advantage of the 100% first year write down on an EV, the vehicle must be brand new and invoiced to the Ltd Co.  Any second hand vehicle (pre-reg / demo included) will not attract the 100% first year write down.  Nor will a vehicle purchased by the Directors and then transferred to the Ltd Co (as the Ltd Co would be buying a second hand vehicle).  Second hand EV's are only able to take advantage of standard depreciation write down.

    If the Ltd Co owns the car, other costs for operating the car can then be accounted as business expenses.  For example insurance, breakdown cover, providing a charge point, maintenance.  

    As a Director, you will then be liable for BIK (currently 2%) on the list price of the car.

    You can claim business mileage at the "energy only" rate (currently 10 pence per mile).  OR the Ltd Co can provide charging at the workplace and not charge the employee and this does not give rise to any further BIK.

    Alternatively, you can buy and operate the car as a personal vehicle and then claim the AMAP mileage rates (45 pence and 25 pence per mile).

    I suspect that the business has a similar chance of securing finance as you do as an individual.  It is most likely that any business finance will require personal guarantees.
  • My advice would be first talk to your accountant and second and perhaps most importantly to consider the wisdom of either buying an expensive depreciating asset that will lose 40% of it's value in three years, or taking on a large monthly cost that gives you nothing at the end of the lease period, even more so if it is a finance option with balloon payments. The economic headwinds are not great at the moment, it would make far more sense to buy a second hand vehicle for a fraction of the cost (which could still potentially be an EV) and benefit from the lower cost and lack of depreciation. 
    Thank you - we have seen that the situation is currently not looking very good for the second hand EV market so a depreciating asset may not be ideal. We'll have to weigh this somewhat vs our plans and we are speaking to our accountant about this
  • JamesLD said:
    My wife and I have a nearly 5 year old limited company and our personal vehicle is on a PCP agreement ending in January. We are exploring the possibilty of switching to an electric vehicle and doing so potentailly via a lease through the business - either a PCP in the business name or BCH. 

    As Directors, we have excellent personal credit scores but struggle on the affordability side when considering finance due being set up salary and income wise for tax efficiency. We might consider making a PCP application for a new vehicle anyway but we have been directed to consider a purchase through the business for an electric vehicle based on the lower BIK and ability to claim back some of the VAT (there will be personal use of the vehicle). The thinking is also that the business might find it easier to secure a finance agreement than we would personally.

    We don't want to burn through a load of hard searches either personally or on the business though so before making any applications wondered if anyone has been in a similar position and could share their experiences? Applying for finance is so hit and miss and we want to make sure that if we do proceed we are properly set up to maximise our chances for success. On the business side we are a small business but we've experienced consistent YOY growth over the last 5 years of 50%+ although as with many younger business our profit levels have been lower by virtue of our continued reinvestment towards growth. Our accounts are healthy though - it's just we don't know what lenders are going to be looking for here in particular. I should say that we sought some funding earlier this year and were approved and received finance from a couple of providers but did get rejected from a couple too.

    Any advice would be appreciated.
    You need to take advice from your Accountant.

    If you purchase a vehicle through the Ltd Co, there is no input VAT reclaimable as you will have personal use of the vehicle.  

    To take advantage of the 100% first year write down on an EV, the vehicle must be brand new and invoiced to the Ltd Co.  Any second hand vehicle (pre-reg / demo included) will not attract the 100% first year write down.  Nor will a vehicle purchased by the Directors and then transferred to the Ltd Co (as the Ltd Co would be buying a second hand vehicle).  Second hand EV's are only able to take advantage of standard depreciation write down.

    If the Ltd Co owns the car, other costs for operating the car can then be accounted as business expenses.  For example insurance, breakdown cover, providing a charge point, maintenance.  

    As a Director, you will then be liable for BIK (currently 2%) on the list price of the car.

    You can claim business mileage at the "energy only" rate (currently 10 pence per mile).  OR the Ltd Co can provide charging at the workplace and not charge the employee and this does not give rise to any further BIK.

    Alternatively, you can buy and operate the car as a personal vehicle and then claim the AMAP mileage rates (45 pence and 25 pence per mile).

    I suspect that the business has a similar chance of securing finance as you do as an individual.  It is most likely that any business finance will require personal guarantees.
    Thank you - we are speaking to our accountant currently of course but we were just keen to get some anecdotal experience from others in potentially similar situation to see what their experiences had been. The information you provided is very helpful also.
  • I've recently done this as a Salary Sacrifice arrangement.  The company takes on the lease, and the employee (director) then signs up to a Salary Sacrifice. BIK for an EV is 2%.  The lease is then deducted from the employee/director's salary before tax & NI are deducted.  50% of the VAT can be reclaimed from the monthly payment.

    I contacted quite a few leasing companies that said they did Salary Sacrifice deals; not many replied but the one that did (Synergy)was very helpful and walked me through the process, providing helpful quotes and breakdowns of payroll information etc
  • I've recently done this as a Salary Sacrifice arrangement.  The company takes on the lease, and the employee (director) then signs up to a Salary Sacrifice. BIK for an EV is 2%.  The lease is then deducted from the employee/director's salary before tax & NI are deducted.  50% of the VAT can be reclaimed from the monthly payment.

    I contacted quite a few leasing companies that said they did Salary Sacrifice deals; not many replied but the one that did (Synergy)was very helpful and walked me through the process, providing helpful quotes and breakdowns of payroll information etc
    Thank you for that information - we had looked at that but with Director level salaries the suggestion was it would be easier to go via the standard BCH route rather than increase our salaries to cover the salary sacrifice that would come - did you do that or was the salary enough already to accommodate a deduction can I ask?
  • norsefox
    norsefox Posts: 194
    Name Dropper First Anniversary First Post Combo Breaker
    Forumite
    edited 4 December 2023 at 5:20PM
    JamesLD said:
    I've recently done this as a Salary Sacrifice arrangement.  The company takes on the lease, and the employee (director) then signs up to a Salary Sacrifice. BIK for an EV is 2%.  The lease is then deducted from the employee/director's salary before tax & NI are deducted.  50% of the VAT can be reclaimed from the monthly payment.

    I contacted quite a few leasing companies that said they did Salary Sacrifice deals; not many replied but the one that did (Synergy)was very helpful and walked me through the process, providing helpful quotes and breakdowns of payroll information etc
    Thank you for that information - we had looked at that but with Director level salaries the suggestion was it would be easier to go via the standard BCH route rather than increase our salaries to cover the salary sacrifice that would come - did you do that or was the salary enough already to accommodate a deduction can I ask?
    You don't need a specific SS leasing arrangement - any leasing arrangement signed up by the company can be turned into an SS arrangement, so long as the vehicle qualifies.  As far as I can tell, the level of SS reduction isn't set specifically either - the taxable element is from the BIK, so the SS can cover the full lease/insurance cost, or it could be on a scale to £0.00 - in which case it's just a company benefit paid for by the Company (and a little paid by the employee through the current 2% BIK).  After all, without SS to confuse matters, all traditional company car arrangements are in effect paid by the Company, with the employee cost borne solely through BIK taxation.

    I don't see any value at all in paying you a higher salary to then take it back again through SS.  The BIK exists either way, and unless I'm missing something, the costs in either arrangement are neutral.
Meet your Ambassadors

Categories

  • All Categories
  • 341.5K Banking & Borrowing
  • 249.6K Reduce Debt & Boost Income
  • 449K Spending & Discounts
  • 233.6K Work, Benefits & Business
  • 605.6K Mortgages, Homes & Bills
  • 172.3K Life & Family
  • 246.5K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards