Buying an electric car through a limited company

by | Mar 4, 2024 | Business, Limited company

As a business owner, perhaps you have been wondering how to make your company greener, but wouldn’t it be great to do this while saving on taxes? Starting your company’s journey towards a greener future while simultaneously enjoying tax savings is not just a distant dream; buying an electric car through a limited company can make it a reality.

Here our accounting team explores the ins and outs of this eco-friendly and financially savvy choice, diving into the advantages, considerations, tax and savings benefits of cruising your company down the electric vehicle lane.

 

Understanding the basics: your business entity

So, what exactly does it mean to buy an electric car through your limited company? It essentially involves your business entity purchasing a brand-new electric vehicle. It sounds obvious, but we need to point out that your business must be a limited company to enjoy this benefit.

Several different types of business entities operate in the UK; the most common of these are limited companies and sole traders. Sole traders are eligible for some tax benefits from buying an electric car for their business. However, the arrangements are different, as the amount you can claim in tax savings will be offset by any personal use you undertake in the vehicle.

An example of this would be if you use your car as a sole trader for non-business journeys just 20 percent of the time, you will only be able to claim 80 percent of the cost of the electric vehicle in your tax allowances. Also, you need to be aware that if you sell this vehicle as a sole trader, there will be a tax charge on the amount received.

Now that we have your business entity straightened out, let’s unravel the perks and potential tax savings that come with this green investment for limited companies.

 

Tax benefits through enhanced capital allowances:

As the owner of your company, we know that tax savings are a powerful incentive to consider when making decisions about choosing the right company vehicle.

If you opt for a brand-new fully electric car, the good news is that you’re in for some enhanced capital allowance tax relief. Whether you purchase it outright or through a hire purchase, you stand to benefit from the first-year allowance.

If you decide to buy a qualifying electric vehicle for your company, you can claim 100% first-year allowances by deducting the total cost from your business profit before any tax. 

It is important to note that you must choose an electric vehicle with zero CO2 emissions, so not a hybrid car. Your electric vehicle must be purchased both new and previously unused; if these conditions are met, you can claim this allowance on your business tax return.

 

But what if I want to lease an electric vehicle? 

You can’t usually claim for items your company is buying to lease to other people or for use within a property that your business lets out. However, if the CO2 emissions stay under the 50g/km threshold, then it is good news! You can deduct the monthly lease cost from your company’s profit, paving the way for tax efficiency and a more environmentally friendly business using the electric vehicle lease option.

 

Reclaim additional savings for electric vehicles:

Now, let’s talk about VAT. You might be in for some reclaiming here if you’re VAT-registered. If your electric vehicle is strictly for business use, you could reclaim 100% of the VAT on your outright EV purchase, or any operating lease payments.

Are you installing a charging point at your workplace? Then, brace yourself for another round of tax benefits. The installation cost qualifies for the first-year allowance, allowing you to claim 100% tax relief in the year you incur these costs.

Suppose your business provides one of your employees with an electric vehicle company car, whether leased or bought. In that case, the company can cover the expenses of setting up a home charging station without incurring any Benefit in Kind (BiK) levy. Consequently, the employee is exempt from paying taxes related to the charging point installation and there are some grants available to help you cover the costs for this installation of electric vehicle charge points.

Let’s not forget the everyday perks that come with electric car ownership. Say goodbye to London and other city clean air zone charges around the UK. There is also no road tax on electric vehicles with zero emissions for now; which will run until April 2025. Of course, no fuel benefit payments are required also, meaning that overall, EVs provide an enticing number of savings for business owners to consider. With lower costs and an increasing number of accessible charging points nationwide, it’s no wonder that many companies are now looking into upgrading their petrol or diesel vehicles to EVs.

 

Electric vehicles for your business, what’s the conclusion from our accounting team:

We think that green choices really do pay off!

Buying an electric car through your limited company aligns with environmental consciousness and offers a roadmap to substantial tax savings. From enhanced capital allowances to VAT reclaims and beyond, the journey is paved with savings opportunities, provided your new electric vehicle is for business use.

Ready to explore this green and financially savvy road?

You can get in touch with our accounting team for personalised advice tailored to your company’s needs.

 

Related Services:

Corporation Tax

VAT

Tax Planning

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