Should I buy an electric car through my business in 2020?
If you’ve seen our earlier blog on buying cars through your business, our answer is usually NO!
However, new rules for electric cars are coming into force in April 2020, making buying an electric car through your business far more attractive!
So to understand the current rules around cars and your business, have a read of our blog should I buy a car through my limited company.
1. What are the new rules?
From 6 April 2020 if vehicles have zero CO2 emissions, the tax situation is very appealling. So if it’s a purely electric vehicle, the CO2 emissions will be zero.
2. How does this affect me personally?
If you’re an employee with a fully electric vehicle provided by your employer, your benefit in kind (BIK) tax from 6 April 2020 will be £0. Yes seriously!
This is because the BIK percentage will be 0%. This is huge as it can be up to 16% of the list price of the car.
For 2021/2022 the BIK rate goes up to 1%, and then for 2022/2023 it goes up to 2%.
But still very low!
3. How does this affect my business?
Business tax* :
For fully electric vehicles you can usually use the full cost of the electric car to reduce your business tax.
This means that if you buy a fully electric vehicle for £20,000, your profits should reduce by £20,000.
The business tax savings could be as much as:
- £3,400 for limited companies.
- £5,800 for sole traders and partnerships.
If you provide a vehicle to your employee (or you, if it’s your own company) then you have to pay national insurance on the BIK value of the vehicle.
So if the BIK is 0%, you won’t have to pay national insurance.
The national insurance on BIK’s is usually 13.8%, so this could be quite a saving.
*based on 2020/2021 tax rates.
This is very general advice – contact us for specific calculations for you.
4. What if I want to buy an electric vehicle before 6 April 2020?
You will still benefit from the tax changes from 6 April 2020 onwards, as set out above. So that’s great news!
From the date you get your electric vehicle up to 6 April 2020, the benefit in kind is 16%, so be careful!
Talk to us to see whether it’s worth buying your car now, and incurring the benefit in kind of 16% for a few months.
If you get a good deal from the car dealership it may be worth it!
If you buy a Tesla Model 3 now for £39,490, your BIK is worked out at 16% of this, so £6,318.
This means your 20% basic rate tax would be around £1,264 for the whole year, or £2,528 if you’re on higher rate tax.
As it’s now January 2020, you’d only pay around 2 months of tax, so £211 basic rate tax or £422 higher rate tax.
If you can get more than that as a discount from the dealership – go for it!
5. What happens next year?
The benefit in kind for electric vehicles goes up to:
- 1% from 6 April 2021
- 2% from 6 April 2022
Which are still both much lower than the previous 16%.
6. Is an electric car really environmentally friendly?
I was talking to a client yesterday who supplies to the motor manufacturing trade. Did you know that it costs double the amount of electricity to make a tesla than an ordinary vehicle?
Consider also the strain on the National Grid if we all start plugging in our vehicles!
7. What next?
The information above is very generalised. The impact on your personal and business tax will totally depend on your own situation, and the vehicle you’re looking at, so do speak to us for tailored guidance.
Please also be aware that there is a Budget on 11 March 2020, so some tax rates and allowances may change.
If you’re not quite ready for an electric vehicle yet, our blog on buying a car through your company may be what you’re looking for.
Thanks for reading!
Kinder Pocock are an approachable cloud-savvy firm of accountants based in Herefordshire but supporting businesses on the move.
We specialise in Security/Technology, Design and Indie Hospitality businesses.
Contact Us to see how we can help