BIK / Dividend / Corporation tax question

[9005rpm]

Hello all,

Despite being a confirmed petrolhead, the reduction to BIK in FY20/21 has caught my attention and I am hoping that someone here can help me with the following tax query.

So, I run a small company that has capital reserves. Let's say I want to acquire a Tesla X and am trying to balance purchase vs PCP vs just extracting the funds as dividends.

If we assume the purchase price is £100k and my company buys the car, I think that means I can offset the full £100k against profits in the current year. That gives me a £19k saving on corporation tax and (assuming this all happen in the next FY) nil BIK. On the other hand, if I don't buy the car but just extract the £100k as dividend I effectively pay 38.1% dividend rate tax on the £81k, leaving me c.£50k in my pocket. I'm trying, but mostly failing, to weigh up the total cost to me of buying the car vs just extracting the cash and spending it on a petrol car. Help me understand please!!

Then, if I decide not to buy the car but to PCP, can I offset the full PCP monthly cost against corporation tax?

I will run via my accountant, but I'm hoping that some of you EV experts will offer a steer!

Thanks in advance.

[oop north]

There are quite a few threads on here and in the finance section that run through the calculations.

In very simple terms (which run the risk of being wrong!) I reckon that running my iPace through the company over three years (current year at 16% benefit in kind and next two years at 0%/1%) reduces cost of £75k car down to me buying a 30-35k used 3.0 diesel estate (5 series or e class etc). I don’t do many business miles (if you do 10k business miles a year you can get £4500 out tax free each year on a private car) but do around 17k miles a year

The marginal combined cost of corporation tax and dividend tax is about 45%. So 100k Tesla (ignoring residual value) means 55k reduction in dividends before adjusting for benefit in kind tax

You pay tax on the full sale proceeds though when sold so corporation tax relief is effectively on depreciation only. I reckon the benefit of 100% CT relief is overstated - if you have a defined period in mind and don’t mind the restrictions of leasing then claiming half the VAT back gives more benefit than buying outright - but that might be offset by a desire to keep the car longer and avoid borrowing costs

[Heres Johnny]

Agreed, only see the FYA as a cash flow saving as in reality you just get tax relief on the depreciation over time.

Essentially with zero BIK the costs of the car are all pre and not post tax. The only real downside is if you do a lot of business miles as the rate drops from 45p a mile to 4p.

There’s a bit of speculation that the current exemption of EV cars from the salary sacrifice rules (which would mean the benefit in kind is the higher if the BIK rate or the actual cost) may be dropped for cars in the luxury car tax bracket (over 40k) but they won’t retrospectively apply that so once you have the car you can be fairly certain of the rates.