Buying an EV via a Ltd company
Discussion
sambucket said:
What are the factors that make leasing a better option than buying?
That's correct in that you can claim half the VAT back. It's not easy to give an answer of which way is best, but often the better overall deal will work out best irrespective of the tax differences. I'm afraid the only real way to say which is best is to get a quote for both and get your accountant to crunch the numbers.
Sorry to resurrect an older thread bu this thread is already tackling the exact question I have in mind. But must admit, I'm finding it a little hard to get my head around the numbers.
Mrs GW and I have a ltd company that we both work for. Usual set up with tax free allowance and paid in dividends.
Considering a model 3 LR to replace wife's car in May 2020. If we were buying this privately, I suspect we would do so through Tesla finance, which is something along the lines of £6k down and 4 years of £600 monthly payments. So a total cost of around £35k over 4 years if you assume we simply hand the car back at the end of the agreement. I'm assuming 10k per annum, 90% private mileage.
If we financed through the business, what sort of saving might we realistically see by doing that? It's a conversation for our accountant really but I suspect I'll not follow his answer either, so really just looking for a very rough approximate saving, if any.
Mrs GW and I have a ltd company that we both work for. Usual set up with tax free allowance and paid in dividends.
Considering a model 3 LR to replace wife's car in May 2020. If we were buying this privately, I suspect we would do so through Tesla finance, which is something along the lines of £6k down and 4 years of £600 monthly payments. So a total cost of around £35k over 4 years if you assume we simply hand the car back at the end of the agreement. I'm assuming 10k per annum, 90% private mileage.
If we financed through the business, what sort of saving might we realistically see by doing that? It's a conversation for our accountant really but I suspect I'll not follow his answer either, so really just looking for a very rough approximate saving, if any.
Tesla's PCP costs are very high if you are going to be handing the car back. Much better off leasing
£4k down and £450 a month over 3 years and 30k miles for the LR is about the going rate.
https://www.gateway2lease.com/cars/tesla/model-3-s...
£4k down and £450 a month over 3 years and 30k miles for the LR is about the going rate.
https://www.gateway2lease.com/cars/tesla/model-3-s...
Saving compared to what? Some people get all excited about the company buying the car as that gives a 100% deduction for tax purposes in the year of purchase. But you can reclaim no vat on the purchase price and pay tax on full proceeds. For me, the contract hire route is better as you get to reclaim half the VAT which is a saving of 10/120 (8.33%) of the total cost of the contract, and you are only financing the vat-exclusive cost, whereas if you buy outright (eg, via hire purchase) the accelerated tax relief on buying it (and the tax you pay on sale proceeds) doesn’t I think give the same benefit.
Agreed Oop North. More often than not leasing works better in my experience, plus the impact on cashflow is reduced and smoothed, and the end result has more certainty.
'If we financed through the business, what sort of saving might we realistically see by doing that? It's a conversation for our accountant really but I suspect I'll not follow his answer either, so really just looking for a very rough approximate saving, if any. '
Just ask your accountant to break it down into cost over the period of ownership/rental. And explain to you the pros/cons of each and any issues to consider. It's pretty basic to work out once you feed in the company and personal variables.
'If we financed through the business, what sort of saving might we realistically see by doing that? It's a conversation for our accountant really but I suspect I'll not follow his answer either, so really just looking for a very rough approximate saving, if any. '
Just ask your accountant to break it down into cost over the period of ownership/rental. And explain to you the pros/cons of each and any issues to consider. It's pretty basic to work out once you feed in the company and personal variables.
To give you an idea, as a higher rate taxpayer, I will be leasing a Model 3 performance next year at 10k miles per annum. The company will pay for everything including electricity and reclaim the VAT where applicable (50% on the car). I've assumed £1K for insurance p.a. and minimal maintenance costs over a 2/3 year period. The monthly cost to me in lost net income will be around £380 per month on current lease rates.
jamoor said:
You can reclaim full vat on any maintenance and possibly upgrades such as full self driving?
That’s an interesting question. Service and maintenance items normally attract the VAT reclaim, as would the addition of certain other items that might be called upgrades (better alloys, stereo equipment, Abba cassettes etc) but I wonder how HMRC would view the £6k purchase and OTA download of full autonomous driving for a Tesla?MrOrange said:
That’s an interesting question. Service and maintenance items normally attract the VAT reclaim, as would the addition of certain other items that might be called upgrades (better alloys, stereo equipment, Abba cassettes etc) but I wonder how HMRC would view the £6k purchase and OTA download of full autonomous driving for a Tesla?
I don't see why not as you'd be using it for a business purpose.I'll probably buy another set of alloys and reclaim the vat
MaxFromage said:
To give you an idea, as a higher rate taxpayer, I will be leasing a Model 3 performance next year at 10k miles per annum. The company will pay for everything including electricity and reclaim the VAT where applicable (50% on the car). I've assumed £1K for insurance p.a. and minimal maintenance costs over a 2/3 year period. The monthly cost to me in lost net income will be around £380 per month on current lease rates.
Would you mind giving me a rough break down of the numbers (assuming they're not too personal)? And just some questions from a simpleton.
As yet we're not VAT registered though may well have to be soon. If we remain non-registered, does that effect what we can claim back in terms of VAT on the lease? And maybe I'm being daft, but if we were VAT registered, would we not be able to reclaim 100% of the VAT on the lease rather than 50%?
In terms of electricity costs, do you just charge a portion of the household bill to your business or does your business just pick up the whole bill?
Essentially it's the net lease cost plus 10% VAT per month multiplied by 81% to adjust for corporation tax then multiplied by 67.5% to account for higher rate tax on dividends. This gives you your net cost of the lease i.e. what you would lose if you took as dividends. Bear in mind you need to calculate the real cost of the lease by adding in the upfront payments as well.
Add
Insurance cost x 81% x 67.5%
Add
Servicing/consumable cost before VAT x 81% x 67.5%
Add
Fuel- I just take 10,000 miles divided by 4 miles per kWh x 13p per kwh (net business cost without VAT) x 81% x 67.5%. This is because I'll charge the car at the office. Estimated, but the cost of charging is relatively minimal.
This then gives you your 'net' cost, what you would lose from your pocket.
You can adjust these figures for basic rate taxpayers or employees accordingly. Also bear in mind corporation tax should be 18% from April 2020, or 82% as a multiplier.
If you're not registered for VAT, you cannot claim any of the VAT back and so your lease costs will be nearly 10% higher than a VAT registered business. HMRC only allows you to reclaim 50% of the VAT back on company cars, not 100%.
You could charge the business 4p for every business mile that you travel using your personal electricity. Private miles are your cost. But frankly 'fuel' costs are only a small proportion of the total lease cost.
Quite a few other considerations, but that gives you an idea.
Add
Insurance cost x 81% x 67.5%
Add
Servicing/consumable cost before VAT x 81% x 67.5%
Add
Fuel- I just take 10,000 miles divided by 4 miles per kWh x 13p per kwh (net business cost without VAT) x 81% x 67.5%. This is because I'll charge the car at the office. Estimated, but the cost of charging is relatively minimal.
This then gives you your 'net' cost, what you would lose from your pocket.
You can adjust these figures for basic rate taxpayers or employees accordingly. Also bear in mind corporation tax should be 18% from April 2020, or 82% as a multiplier.
If you're not registered for VAT, you cannot claim any of the VAT back and so your lease costs will be nearly 10% higher than a VAT registered business. HMRC only allows you to reclaim 50% of the VAT back on company cars, not 100%.
You could charge the business 4p for every business mile that you travel using your personal electricity. Private miles are your cost. But frankly 'fuel' costs are only a small proportion of the total lease cost.
Quite a few other considerations, but that gives you an idea.
jamoor said:
You can reclaim full vat on any maintenance and possibly upgrades such as full self driving?
The rules on accessories or modifications are here:https://www.gov.uk/hmrc-internal-manuals/vat-input...
You would have to argue the purchase for business use and this could also be affected by the business/private mileage ratio.
HMRC's rules haven't really caught up with the way Tesla work, and it'd be interesting to know what HMRC would say about the BIK list price... Clearly not an issue at 0%, but as it increase it could be.
MaxFromage said:
Essentially it's the net lease cost plus 10% VAT per month multiplied by 81% to adjust for corporation tax then multiplied by 67.5% to account for higher rate tax on dividends. This gives you your net cost of the lease i.e. what you would lose if you took as dividends. Bear in mind you need to calculate the real cost of the lease by adding in the upfront payments as well.
Add
Insurance cost x 81% x 67.5%
Add
Servicing/consumable cost before VAT x 81% x 67.5%
Add
Fuel- I just take 10,000 miles divided by 4 miles per kWh x 13p per kwh (net business cost without VAT) x 81% x 67.5%. This is because I'll charge the car at the office. Estimated, but the cost of charging is relatively minimal.
This then gives you your 'net' cost, what you would lose from your pocket.
You can adjust these figures for basic rate taxpayers or employees accordingly. Also bear in mind corporation tax should be 18% from April 2020, or 82% as a multiplier.
If you're not registered for VAT, you cannot claim any of the VAT back and so your lease costs will be nearly 10% higher than a VAT registered business. HMRC only allows you to reclaim 50% of the VAT back on company cars, not 100%.
You could charge the business 4p for every business mile that you travel using your personal electricity. Private miles are your cost. But frankly 'fuel' costs are only a small proportion of the total lease cost.
Quite a few other considerations, but that gives you an idea.
Absolutely fantastic, thank you. Fully understand the logic now. Much appreciated. Add
Insurance cost x 81% x 67.5%
Add
Servicing/consumable cost before VAT x 81% x 67.5%
Add
Fuel- I just take 10,000 miles divided by 4 miles per kWh x 13p per kwh (net business cost without VAT) x 81% x 67.5%. This is because I'll charge the car at the office. Estimated, but the cost of charging is relatively minimal.
This then gives you your 'net' cost, what you would lose from your pocket.
You can adjust these figures for basic rate taxpayers or employees accordingly. Also bear in mind corporation tax should be 18% from April 2020, or 82% as a multiplier.
If you're not registered for VAT, you cannot claim any of the VAT back and so your lease costs will be nearly 10% higher than a VAT registered business. HMRC only allows you to reclaim 50% of the VAT back on company cars, not 100%.
You could charge the business 4p for every business mile that you travel using your personal electricity. Private miles are your cost. But frankly 'fuel' costs are only a small proportion of the total lease cost.
Quite a few other considerations, but that gives you an idea.
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