Newsletter Oct 2020 – Ballards

Mr Matthew Watson, Ballards Accountants

I have acted for many Consultants over more than 25 years. I have had a number of queries recently concerning electric company cars, and I thought a discussion regarding the tax implications of owning a car through your personal company would be of interest.

Please be aware that this has been prepared based on current tax legislation, which is subject to change.

A summary of the tax implications are as follows:

Tesla (for example):

The primary expense is still the purchase of the vehicle, and therefore the decision as to whether to purchase a new Tesla should never be made purely based on tax considerations.

That said, the annual cost of the car benefit for an electric car is significantly lower for other vehicles.

These calculations do not allow for the corporation tax savings on paying for running costs through the company. It also does not allow for the fuel efficiency of the vehicles, or indeed any differential on their running costs, repair requirements, or likely depreciation to other cars, which should also be considered.

It is also worth noting that in order to claim the capital allowances on the electric car up-front, it is necessary to complete the purchase through the company before the First Year Allowance is removed in March 2021.

Please see below for supporting detail for these calculations.

Purchase of an electric car

Company car rates are lower for electric and hybrid vehicles than for cars with more normal levels of CO2 emissions.

Impact on company tax

The impact on the tax of your personal company depends on how the car is purchased.

As long as it is purchased either outright or through a finance agreement which does not include a large balloon payment, the car would be treated as a capital asset of the company, and therefore capital allowances could be claimed.

Normally, cars only qualify for writing down allowances, and do not qualify for any first year or annual investment allowances. This means that their tax relief is spread over a number of years.

If, however, a car has CO2 emissions which are less than 75g/km, it is possible to claim first year allowances on the vehicle. This relief may end from 31 March 2021.

This is treated in the same way as Annual Investment Allowance, but is not subject to the annual cap of £200,000.

If there is a significant balloon payment due at the end of the agreement, capital allowances cannot be claimed. Instead, the lease payments are allowable when paid.

The running costs of the car, e.g. servicing and repairs, should also be paid by your company as these would be tax-deductible expenses, and do not increase the benefit in kind chargeable on the Director/employee.

The company normally has to pay Class 1A NIC on the provision of the benefit in kind. This NI is deductible for corporation tax purposes, reducing the net Class 1A NIC due – as the benefit is nil the class 1A is nil.

Impact on personal tax position

The benefit in kind charged on cars varies according to their list price, and emissions of CO2. It is not impacted by the age of the car either when purchased or during the year of the benefit in kind. It would be reduced by any capital contribution to the cost of the car, or any amount paid to the company for the use of the car during the year.

This benefit in kind is treated as additional employment income, and assuming that your levels of income remain similar would be taxed at 40%.

If you would like further information regarding company cars or any other matter, please call Matthew Watson on:

Tel: 07961 048736

or email:  matthew.watson@ballardsllp.com