EVs and First Year Capital Allowances
Discussion
I'm considering an EV for my next daily driver and perhaps someone can very quickly confirm my understanding is correct regarding the situation in relation to tax. Being self employed I currently prepare my tax return on cash basis but using Capital Allowances to calculate tax in relation to the car I use for business.
I understand that if I were to purchase say, a Tesla M3 at £50k, I can deduct the full cost against my current year tax bill using the first year capital allowances allowance, effectively saving the value of my entire years tax, which might be something like £15k? I do have an accountant but before discussing this further with him I wanted to check my understanding is broadly accurate!
TIA
I understand that if I were to purchase say, a Tesla M3 at £50k, I can deduct the full cost against my current year tax bill using the first year capital allowances allowance, effectively saving the value of my entire years tax, which might be something like £15k? I do have an accountant but before discussing this further with him I wanted to check my understanding is broadly accurate!
TIA
You are correct. However, the benefit is perhaps not as generous as it might first appear - it’s really just a cash flow benefit.
If/when you sell the M3, you’re liable for income tax on that sale amount. So say you sold it after 12 months for £40k, you’ll pay tax on £40k.
If you keep your M3 longer than a year, you can’t claim any further capital allowances so your tax bill is higher in later years.
If/when you sell the M3, you’re liable for income tax on that sale amount. So say you sold it after 12 months for £40k, you’ll pay tax on £40k.
If you keep your M3 longer than a year, you can’t claim any further capital allowances so your tax bill is higher in later years.
Yes. If you opt for the 100% allowance (called the Annual Investment Allowance or AIA) then you will cannot claim any further Capital Allowances on that vehicle. If you want to make use of the AIA, you are not obliged to claim 100%. You can opt to claim a lower percentage in the first year and then the normal Writing Down Allowance (WDA) for each successive year.
As has been mentioned above, if the vehicle is eventually disposed of (i.e. sold, used as trade in, used to clear loan balance etc), the value received on disposal - less any balance of allowances unclaimed at the date of disposal - will be treated as taxable income.
When you said you were "self employed", are you GENUINELY operating in a self employed capacity i./e. a sole trader or are you running your business through a limited company?
As has been mentioned above, if the vehicle is eventually disposed of (i.e. sold, used as trade in, used to clear loan balance etc), the value received on disposal - less any balance of allowances unclaimed at the date of disposal - will be treated as taxable income.
When you said you were "self employed", are you GENUINELY operating in a self employed capacity i./e. a sole trader or are you running your business through a limited company?
quinny100 said:
If you keep your M3 longer than a year, you can’t claim any further capital allowances so your tax bill is higher in later years.
What does this mean please? Why is tax bill higher in later years?(I understand disposal is counted as income, but that's just one year? Or am I just misreading and this is all you mean)
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