Declaring and paying BIK taxes for EV company car
Discussion
PurpleFox said:
oop north said:
Corporation tax rate is increasing from April 2023 - 19% on first £50k, 26.5% thereafter to £250k I think
So buy a car now and get relief at 19%, sell in three years and get taxed on the proceeds at 26.5%. Not my idea of fun
Ouch. I knew it was going up but didn't know the specifics. So buy a car now and get relief at 19%, sell in three years and get taxed on the proceeds at 26.5%. Not my idea of fun
Still though, if company is making money and you have no need to reinvest and no desire to draw a salary, how do you enjoy the proceeds?
(I realise this has limited enjoyment beyond the satisfaction of delaying paying tax)
oop north said:
Corporation tax rate is increasing from April 2023 - 19% on first £50k, 26.5% thereafter to £250k I think
So buy a car now and get relief at 19%, sell in three years and get taxed on the proceeds at 26.5%. Not my idea of fun
Wouldn’t you be replacing the vehicle? Presumably with something of greater value, therefore there wouldn’t be any proceeds.So buy a car now and get relief at 19%, sell in three years and get taxed on the proceeds at 26.5%. Not my idea of fun
FWIW said:
oop north said:
Corporation tax rate is increasing from April 2023 - 19% on first £50k, 26.5% thereafter to £250k I think
So buy a car now and get relief at 19%, sell in three years and get taxed on the proceeds at 26.5%. Not my idea of fun
Wouldn’t you be replacing the vehicle? Presumably with something of greater value, therefore there wouldn’t be any proceeds.So buy a car now and get relief at 19%, sell in three years and get taxed on the proceeds at 26.5%. Not my idea of fun
Heres Johnny said:
You could but that only defers potentially higher tax rates in the future. If BIK rates increase which they undoubtedly will at some point, you may well want to exit and then you get the problem.
Fair point, it will obviously become an overhead on exit…but that was going to happen anyway. can’t be avoiding tax now, can we… Another benefit to option b is if the alternative to a company car is to buy one yourself out of taxed income. That’s what I was doing until my company EV came along. Now, as well as the running costs, the company is picking up the cost of depreciation and the car was bought from untaxed income (I know this will come back to haunt me when the car is finally sold). In my case the £40,000 I spent on the car would have attracted nigh-on £8,000 of corporation tax which would be gone forever.
Silverage said:
Another benefit to option b is if the alternative to a company car is to buy one yourself out of taxed income. That’s what I was doing until my company EV came along. Now, as well as the running costs, the company is picking up the cost of depreciation and the car was bought from untaxed income (I know this will come back to haunt me when the car is finally sold). In my case the £40,000 I spent on the car would have attracted nigh-on £8,000 of corporation tax which would be gone forever.
It's a judgement call, I decided not to put mine through the company, I bought lightly used Tesla CPO as they have perioidic fire sales and its now worth more than I paid - I know its exceptional times but in the current climate, the league table looks a bit like this to me from the most expensive down to the best value:Personal lease - money gone, no upside from low depreciation, out of taxed income, only positive is 45p business miles and certainty on cost, albeit high
Company lease - money gone, no upside on low depreciation, small VAT advantage, 5p a busisness mile downside
Personal PCP - maybe a payday in the future if depreciation stays low, balance is on how many company car miles you do, interest rates tend to be the highest
Company PCP - maybe a future payday but that unwinds tax savings, balance depreciation v BIK payments and 5p business mile rate
Company outright - low depreciation, but good cash flow saving irrespecitve from deferring a wedge of tax but If the company has debt or can use the funds then you'd probably lease or PCP anyway and not buy outright
Personal outright - current low depreciation and even profit which isn't taxable, 45p business miles, downside might be how funded, I see mine as my cash reserve as I can sell it within 3 days if I ever needed 45k in a hurry, if you have to borrow then other options exist
You'd need to work out your oiwn situation and a crystal ball on future depreciation and tax rates (hence why I said based on the current climate) to know where the tipping points are.
lizardbrain said:
It also depends on how long you keep the car? I bought company outright because I intend to keep the car for 8 years. Hopefully any bik rises are modest and offset by putting insurance etc through the company.
The main downside in my mind is it being difficult to sell on a whim.
Why is that, because the deferred tax hoves back into view again?The main downside in my mind is it being difficult to sell on a whim.
I sold mine within 6 months.
First time around I had to get an EV by 31 March to avoid paying a fortune in corporation tax for the 20/21 financial year. There were bargains to be had on VW ID.3s so I bought one of those. The car I really wanted though was the Hyundai Ioniq 5. This wasn’t available in the UK until September, so as soon as it was, I chopped in the ID.3 against one. Because car prices had since gone mad, I only lost £2000 on the ID.3 and even managed to “save” the corporation tax on the extra the Hyundai cost for this time around.
First time around I had to get an EV by 31 March to avoid paying a fortune in corporation tax for the 20/21 financial year. There were bargains to be had on VW ID.3s so I bought one of those. The car I really wanted though was the Hyundai Ioniq 5. This wasn’t available in the UK until September, so as soon as it was, I chopped in the ID.3 against one. Because car prices had since gone mad, I only lost £2000 on the ID.3 and even managed to “save” the corporation tax on the extra the Hyundai cost for this time around.
As long as the next car is the same price or more expensive than the first one, then it’s not an issue.
Here’s my case with rounded figures and corp tax at 20% for ease:
20/21 year, buy ID.3 for £30,000, “save” £6000 corp tax
21/22 year, sell ID.3 for £28,000 (it was actually p/x), corp tax of £5600 becomes due, if I didn’t …
… buy Ioniq 5 for £40,000, “saving” £8000 corp tax (£8000 - £5600 = £2400 net or 20% of the £12000 difference in price). I’m no longer liable for the £400 corp tax I would have paid on the £2000 that the ID.3 lost in depreciation.
To me, the corporation tax saving on the depreciation alone makes this worth doing. When I think of all the money I have lost to this over the years and that was from money that I’d paid corporation tax and some sort of dividend tax to get out of the business.
Here’s my case with rounded figures and corp tax at 20% for ease:
20/21 year, buy ID.3 for £30,000, “save” £6000 corp tax
21/22 year, sell ID.3 for £28,000 (it was actually p/x), corp tax of £5600 becomes due, if I didn’t …
… buy Ioniq 5 for £40,000, “saving” £8000 corp tax (£8000 - £5600 = £2400 net or 20% of the £12000 difference in price). I’m no longer liable for the £400 corp tax I would have paid on the £2000 that the ID.3 lost in depreciation.
To me, the corporation tax saving on the depreciation alone makes this worth doing. When I think of all the money I have lost to this over the years and that was from money that I’d paid corporation tax and some sort of dividend tax to get out of the business.
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