Electric car capital allowance and vat query

[Qwerty911]

I’m a sole trader considering buying an electric car. The car will have private use therefore I understand that I cannot reclaim the vat. My question is whether the full price incl the vat is tax deductible, or only the figure net of vat?

[Simpo Two]

Qwerty911 said:

I’m a sole trader considering buying an electric car. The car will have private use therefore I understand that I cannot reclaim the vat. My question is whether the full price incl the vat is tax deductible, or only the figure net of vat?

Wild guess 1: You are VAT registered. 2: If you can't reclaim the VAT then put the gross sum in, because that's what you paid. But wait for an expert to come along

[Qwerty911]

Yes I’m vat registered.

[LeighW]

Simpo is right, but bear in mind that any claim for capital allowances must be restricted for your private use percentage.

Also bear in mind that a brand new electric car qualifies for a 100% first year allowance (FYA), whereas if it's used then the normal 18% writing down allowance applies.

Have you considered leasing? You can reclaim 50% of the VAT on car lease payments if you have private use.

[Eric Mc]

You cannot claim the full 100% Annual Investment Allowance if the asset (not just electric cars) has a private use element.
There has to be a private use adjustment.

Bear in mind that whenever an asset is sold (or traded in) HMRC will want to claw back any tax relief claimed on that asset during its lifetime with the business through taxing the proceeds on the disposal.

And if you (legitimately) reclaim VAT on the purchase price of the asset when buying it - you must also declare VAT on the sale proceeds (or trade-in value) when the asset is eventually disposed of. That could make it awkward selling the asset to a non VAT registered person or business.

[Ean218]

Eric Mc said:

You cannot claim the full 100% Annual Investment Allowance if the asset (not just electric cars) has a private use element.
There has to be a private use adjustment.

But as the poster above pointed out, the claim would be for 100% First Year Allowance not AIA so private use is irrelevant.

[WillB]

Eric Mc said:

And if you (legitimately) reclaim VAT on the purchase price of the asset when buying it - you must also declare VAT on the sale proceeds (or trade-in value) when the asset is eventually disposed of. That could make it awkward selling the asset to a non VAT registered person or business.

Would make no difference selling to a non VAT registered business / person. The total price is the same. It's VAT qualifying (VQ), so they just can't get the VAT back, would in no way make it awkward.... Also many motor dealers actively seek out VQ cars, so they would see it as a positive.

[Eric Mc]

I said the word "asset" rather than "car".

[Eric Mc]

Ean218 said:

But as the poster above pointed out, the claim would be for 100% First Year Allowance not AIA so private use is irrelevant.

FYA are also subject to private use adjustments if relevant.

From an accounting website -

Private use

Where the car is used for both business and private use, the first-year allowance must be reduced proportionately to reflect the private use.

[LeighW]

LeighW said:

Simpo is right, but bear in mind that any claim for capital allowances must be restricted for your private use percentage.

Also bear in mind that a brand new electric car qualifies for a 100% first year allowance (FYA), whereas if it's used then the normal 18% writing down allowance applies.

Have you considered leasing? You can reclaim 50% of the VAT on car lease payments if you have private use.

Just to add to my post above in case the original poster comes back (and I wouldn't blame him if he didn't - why do some people insist on adding pointless irrelevant comments just for the sake of arguing?), if he buys the car and he claims the FYA (restricted for private use), when he sells it, he'll have a balancing charge based on the disposal proceeds (again, restricted for private use). Effectively you get tax relief on the diminution in value over the period of ownership, hence why leasing can be a viable alternative depending on the figures involved.

[LeighW]

Eric Mc said:

You cannot claim the full 100% Annual Investment Allowance if the asset (not just electric cars) has a private use element.
There has to be a private use adjustment.

You cannot claim AIA at all on a car with private use, full stop.

[WillB]

Eric Mc said:

I said the word "asset" rather than "car".

The OP's question was about an electric car

[Qwerty911]

To try get clarification here, my sole trader business would buy the car, then provide it to an employee as a company car with private use. That employee would declare and be taxed on the benefit.
Surely in this scenario 100% AIA applies?

[LeighW]

Qwerty911 said:

To try get clarification here, my sole trader business would buy the car, then provide it to an employee as a company car with private use. That employee would declare and be taxed on the benefit.
Surely in this scenario 100% AIA applies?

I assumed from your original question that the car would be for you, not for an employee. AIA cannot be claimed on a car with any private use, but a First Year Allowance (FYA) 100% allowance can be claimed on an electric car as long as it is new.