Is it worth having an electric company car?

Having a company car seems like an attractive proposition. But is it? Buying your own car privately or leasing could work out cheaper.

Explore all the options below before making your decision.

Privately owned car

You would own the car personally and then claim 45p per mile back from the company for any business trips you make. (45p per mile for the first 10,000 miles per tax year and then 25p per mile thereafter)

These mileage repayments would not impact your personal tax position. The mileage payments are an allowable expense for corporation tax, so this would reduce your corporation tax bill.

No VAT can be claimed on this mileage payment as electricity is not considered fuel for these purposes.

Buying a car through the company

You would have to pay personal income tax on the benefit in kind. The benefit in kind is worked out by applying a % to the list price of the car.  The % confirmed so far is 2% for 2022-25; 3% for 2025-26; 4% for 2026-2027; 5% for 2027-2028; 7% for 2028-2029 and 9% for 2029-2030 tax years.

e.g. if you purchased a Tesla electric car with a list price of £59,000, you would pay 2%, so £1,180 for the tax year 2024-25 (59,000 x 2%).

The company can provide a charging point both at work and home and no benefit in kind would arise even if some of the charge is used for private miles.  If you use your personal electricity to charge the car for business mileage, you can reimburse yourself, please see our Fuel advisory page for the most up to date rates. If you can measure the electricity used to charge your car then a direct claim can be made from the company for home electric costs

All company car running costs such as maintenance & insurance can be paid through the company and VAT reclaimed as appropriate.  Your company should be named as the car owner with DVLA.

From a company point of view, the car would be eligible for first year allowances for corporation tax purposes at 100% of the cost price (provided the car is brand new and unused or a demonstrator). You would depreciate the car in the accounts over its expected useful life.

However there is a sting in the tail as when you sell the car, you will pay tax on 100% of the proceeds.  Remember also that corporation tax rates are increasing to 25% in April 2023.

The company would also pay class 1A (13.8% for 24-25 tax year) on the benefit calculated, but this is treated as an allowable expense for corporation tax so in essence, the company would pay 10.35% (13.8% x 75%).  For the example given here, the cost to the company would be £122.13 (£1180 x 10.35%).

If you are a VAT registered business and the car will be used some of the time for personal use, you will not be able to reclaim any VAT on the purchase price

Leasing a car through the company

If you lease the car and the company owns the car at the end of the lease (e.g. hire purchase), the rules are the same as for ‘Buying the car through the company’ above.

If you only lease the car for a certain number of years and then give it back, the car will not be an asset in the company.

The monthly lease payments will be treated as any other company expense and will reduce your corporation tax by 19%-26.5% depending on your taxable company profits for the year.

The tax implications for you personally will be the same as above (benefit in kind).

If you are a VAT registered business and you take the car under an operating lease, you can reclaim 50% of the VAT charged.

If the company takes out a hire purchase or PCP loan then it is effectively purchasing the car outright for tax purposes

Summary

At the moment, whilst the benefit in kind rules are so low, it’s generally very worthwhile to have an electric company car which is a major living expense that the company can pay for so that your net personal income from the company can be used for more exciting things!

The decision whether to purchase the car outright or lease it needs to suit your personal and business situations; considering matters such as how long you expect to keep the car, flexibility, business cash flow and financing cost.

If you’re still unsure which option is the best for you, please don’t hesitate to give us a call.