EVs via the business...

[Terminator X]

Perhaps I'm thick but what is going on here? Surely the business is "suffering" given the massive depreciation over say 3-4 years? What is in it for the business or the owner(s)?

TX.

[StevieBee]

Businesses don't purchase vehicles with the same emotion or need as private users. They are a 'tool of the trade', a necessary overhead that is factored into cashflow forecasting including the cost of depreciation. These costs are recovered from the sale of whatever it is they are selling. However, there are advantages to the company that are not available to private buyers.

The amount a vehicle depreciates by is deducted from the profit the company makes thereby reducing the amount of corporation tax the company is liable for. HMRC determine the amount of depreciation that can be used in this way and currently, EVs enjoy a more generous rate in this regards compared to ICE vehicles.

Whilst the car is being used, the permitted level of depreciation causes no immediate impact on cashflow (only the general running costs). When the car is sold or PX'ed any further depreciation is again deducted from taxable profits.

So whilst the car itself may have shed a lot of value, the net impact on the business is less because that loss has resulted in them paying less tax whilst at the same time availing themselves the use of an asset for the day to day efficient running of that business.

In this respect, it is no different to any piece of plant, machine, computer or any other tool, all of which will loose material value over the time they are being used but will also make the company money over the same period of time (hopefully).

For EVs, there are additional incentives to companies and users that make them more attractive than traditional ICE vehicles.

Edited by StevieBee on Tuesday 4th February 07:27

[MustangGT]

Terminator X said:

Perhaps I'm thick but what is going on here? Surely the business is "suffering" given the massive depreciation over say 3-4 years? What is in it for the business or the owner(s)?

TX.

Very few businesses buy a car, they generally lease them, therefore have fixed monthly payments that are easy to forecast etc.

[andy43]

MustangGT said:

Terminator X said:

Perhaps I'm thick but what is going on here? Surely the business is "suffering" given the massive depreciation over say 3-4 years? What is in it for the business or the owner(s)?

TX.

Very few businesses buy a car, they generally lease them, therefore have fixed monthly payments that are easy to forecast etc.

SME here, we leased the first very cheaply in 2015, second in 2018 fairly cheaply, bought the third in 2020 and got out ok, current fourth EV we bought in 2022 and it’s now in the toilet value wise to the tune of £15000. Overall we’ve done ok but this one will be our last purchase - we will probably go back to private ownership or possibly lease an EV again but I’m anticipating it’ll become less attractive tax wise going forward - the £190 car tax is just the start imho.
Currently looking at 15-20 year old Mini Coopers!
Lease prices are getting a bit silly now for anything not bargain basement bin Chinese or Vauxhall as residuals have tanked.
Anyone who bought something chunky like a Taycan on the business might be kicking themselves but compared to an equivalent ICE overall there’s probably not much in it because of the tax incentives.

[TownIdiot]

Terminator X said:

Perhaps I'm thick but what is going on here? Surely the business is "suffering" given the massive depreciation over say 3-4 years? What is in it for the business or the owner(s)?

TX.

People like new cars.
They all depreciate.

If the company buys the car it's from untaxed income and they get tax relief on the depreciation and running costs
The employee gets to the use the car with a very low taxable benefit in kind and zero running costs.

[Eric Mc]

TownIdiot said:

People like new cars.
They all depreciate.

If the company buys the car it's from untaxed income and they get tax relief on the depreciation and running costs
The employee gets to the use the car with a very low taxable benefit in kind and zero running costs.

Although the generous tax concessions that currently exist for EVs will not last too much longer.

[AndyC_123]

You use it to reduce your corporation tax.

You're going to lose a chunk of money anyway via tax, so you may as well lose some of the money whilst driving around in a car

[M1AGM]

Terminator X said:

Perhaps I'm thick but what is going on here? Surely the business is "suffering" given the massive depreciation over say 3-4 years? What is in it for the business or the owner(s)?

TX.

Leasing as mentioned earlier protects from unforeseen depreciation. Capital purchase would be painful.

I leased a Merc EQC for 3 years that went back last month. For an £83k car new, it cost my business £707 + VAT a month with minimal BIK to me, which was an absurdly good deal at the time as there were significant shortages of vehicles/chips when I ordered it. The monthly lease payment is offset against CT along with some of the VAT which is much better than taking the money from the business to fund the car privately by paying income tax. The car 'owed' £39k when it went back to MBUK, but was only actually worth mid high £20k ish. So MB have taken the hit on it (although they managed to hit me with £1300 of damage charges which weren't there when it was collected but hey ho).

[John Laverick]

I purchased an approved used I pace Jag (2021 with 15k miles) outright for £30k through my business.

My thoughts being that I'm.not bothered about have a brand new car and I can get all the advantages of running an electric car through the business whilst avoiding the huge depreciation.

Does my approach stack up?

The EQC lease example above cost £26,752, my maths say that after 3 years my business will be better off (vs lessing new) as it retains the assest (which is surely going to be worth more than £3.5k)

Edited by John Laverick on Saturday 8th February 07:20

[Terminator X]

^^ interesting. I thought they had to be new cars to benefit the business?

TX.

[MaxFromage]

John Laverick said:

I purchased an approved used I pace Jag (2021 with 15k miles) outright for £30k through my business.

My thoughts being that I'm.not bothered about have a brand new car and I can get all the advantages of running an electric car through the business whilst avoiding the huge depreciation.

Does my approach stack up?

The EQC lease example above cost £26,752, my maths say that after 3 years my business will be better off (vs lessing new) as it retains the assest (which is surely going to be worth more than £3.5k)

Edited by John Laverick on Saturday 8th February 07:20

I always recommend leasing to my clients. The cost is known over the period versus relying on future values.

Firstly you need to compare it to a iPace to be honest. You can lease one for around £18K over 3 years.

This cost will be fully expensed whereas you'll get 18% allowances per annum on the used iPace. Not a huge difference.

If you work on the used IPace halving in value, then the overall cost over the period will be similar.

However you have the risk of major repairs on an out of warranty iPace. Given the potential for large bills, I couldn't recommend the used route in this example. Plus you'll have a nice new car, breakdown cover etc.

[MaxFromage]

Terminator X said:

^^ interesting. I thought they had to be new cars to benefit the business?

TX.

You get relief on all electric cars, it just differs how you get that relief, the level of relief and the timing. In all permutations, you can still claim all the running costs which is one of the main benefits.

[MustangGT]

John Laverick said:

I purchased an approved used I pace Jag (2021 with 15k miles) outright for £30k through my business.

Edited by John Laverick on Saturday 8th February 07:20

My current boss did something similar, older iPace but outright purchase. He has learnt not to do that ever again! Certainly not with a Jaguar anyway.

[Jockman]

I must be the thick one now.

I was always under the impression that Depreciation is added BACK in before Corp Tax is calculated ie there is no tax relief on depreciation?

[TownIdiot]

Jockman said:

I must be the thick one now.

I was always under the impression that Depreciation is added BACK in before Corp Tax is calculated ie there is no tax relief on depreciation?

With an EV you are entitled to a 100% allowance.

I think it's 18% for a normal car.

[FWIW]

StevieBee said:

. HMRC determine the amount of depreciation that can be used in this way and currently, EVs enjoy a more generous rate in this regards compared to ICE vehicles.

Whilst the car is being used, the permitted level of depreciation causes no immediate impact on cashflow (only the general running costs).

Edited by StevieBee on Tuesday 4th February 07:27

Can you expand on this HMRC depreciation rate please?

[MustangGT]

FWIW said:

StevieBee said:

. HMRC determine the amount of depreciation that can be used in this way and currently, EVs enjoy a more generous rate in this regards compared to ICE vehicles.

Whilst the car is being used, the permitted level of depreciation causes no immediate impact on cashflow (only the general running costs).

Edited by StevieBee on Tuesday 4th February 07:27

Can you expand on this HMRC depreciation rate please?

I think this may be useful:

https://drivesmart.co.uk/hptaxreliefdepreciation.a...


This only applies to cars bought by the business, not to leased cars.

[Jockman]

TownIdiot said:

Jockman said:

I must be the thick one now.

I was always under the impression that Depreciation is added BACK in before Corp Tax is calculated ie there is no tax relief on depreciation?

With an EV you are entitled to a 100% allowance.

I think it's 18% for a normal car.

Yes I see the Capital Allowances but if you zero the car value from day one then surely you have a large corp tax bill at the end on the profit from disposal of an asset?

I might be looking at it incorrectly, mind.....

[TownIdiot]

Jockman said:

Yes I see the Capital Allowances but if you zero the car value from day one then surely you have a large corp tax bill at the end on the profit from disposal of an asset?

I might be looking at it incorrectly, mind.....

I suppose the theory is you buy another one
Or
Keep it until it's worthless

By the time you've have all running costs and low BIK factored in it's been a good way of running a car.

[Jockman]

TownIdiot said:

I suppose the theory is you buy another one
Or
Keep it until it's worthless

By the time you've have all running costs and low BIK factored in it's been a good way of running a car.

Yeah, after 35 years of Contract Hiring and Purchasing Company Cars (the last 6 years being all Electric) I can see the merits but I'm always wary of Governments giving with one hand and taking away with the other.

It will be interesting to see what they settle on for BIK on the Fuel for Electric Cars.