EV company car 100% FYA - please explain!
Discussion
Hi all
I'm director of a Ltd Company (along with the wife), and have perhaps a little hastily, put a £2000 deposit down on a Tesla Model S, its a great bit of kit, but in particlar it was the EV incentives that attracted me - 0% BIK tax (this year anyway) and 100% 1st year write down allowance. I've emailed my accountant about the implications of these incentives, and his reply suggests this is indeed a great deal, but from reading around the subject I'm a bit concerned his advice isn't correct - or at least he hasn't picked up on an error in the financial scenario I sent him.
Leaving aside the issue of (possible) wrong advice from my accountant (I very much hope he's right and my fears are wrong), can someone confirm which of these ideas about 100% FYA and the impact on corporation tax is correct?:
1. The company pays (for example) £70k for the Tesla, but the 100% FYA effectively reduces the cost to £56k by reducing the company's corporation tax liability by 20%.
2. The company pays £70k for the Tesla, without the 100% FYA the company would effectively be paying £84k due to CT, the 100% FYA just brings the effective price back down to £70k.
When I emailed my accountant prior to placing the deposit, I included some fag packet maths including scenario 1, and he certainly didn't take issue with it. But my reading around suggests scenario 2 is correct. I've emailed my accountant again for clarification, but am awaiting a response. Scenario 2 adds £14k to the cost of the purchase and would mean I'm probably going to pull out and lose my deposit.
Help please
Thanks
Chris
P.S. I am cleanly shaven and have lost a lot of weight recently.
I'm director of a Ltd Company (along with the wife), and have perhaps a little hastily, put a £2000 deposit down on a Tesla Model S, its a great bit of kit, but in particlar it was the EV incentives that attracted me - 0% BIK tax (this year anyway) and 100% 1st year write down allowance. I've emailed my accountant about the implications of these incentives, and his reply suggests this is indeed a great deal, but from reading around the subject I'm a bit concerned his advice isn't correct - or at least he hasn't picked up on an error in the financial scenario I sent him.
Leaving aside the issue of (possible) wrong advice from my accountant (I very much hope he's right and my fears are wrong), can someone confirm which of these ideas about 100% FYA and the impact on corporation tax is correct?:
1. The company pays (for example) £70k for the Tesla, but the 100% FYA effectively reduces the cost to £56k by reducing the company's corporation tax liability by 20%.
2. The company pays £70k for the Tesla, without the 100% FYA the company would effectively be paying £84k due to CT, the 100% FYA just brings the effective price back down to £70k.
When I emailed my accountant prior to placing the deposit, I included some fag packet maths including scenario 1, and he certainly didn't take issue with it. But my reading around suggests scenario 2 is correct. I've emailed my accountant again for clarification, but am awaiting a response. Scenario 2 adds £14k to the cost of the purchase and would mean I'm probably going to pull out and lose my deposit.
Help please
Thanks
Chris
P.S. I am cleanly shaven and have lost a lot of weight recently.
Edited by griffchris on Sunday 8th June 08:01
Edited by griffchris on Sunday 8th June 08:20
How are you "buying" the asset. Are you -
buying outright
buying using a simple bank loan
buying under a Hire Purchase agreement
acquiring under a finance lease
acquiring under an operating lease (i.e. a simple rental)
You can only claim FYA on assets you have bought or are actually buying. You cannot claim FYA (or any other Capital Allowances for that matter) on assets which are being acquired under a lease agreement or a rental agreement.
100% FYA allowances are available against qualifying assets. These usually are plant and machinery, equipment, fixtures and fittings, commercial vehicles etc. At the moment, the 100% FYA is also currently available against certain environmentally friendly motor cars.
Essentially, the FYA allows you to write off the total cost of the asset against the business profits. So, if you spend £30,000 on a qualifying asset, £30,000 is deducted from your taxable business profits.
So, effectively, you will reduce your Corporation Tax bill by £6,000 (£30,000 x 20%)
You need to remember that when the asset is eventually disposed of, since you claimed 100% allowances on its original cost, the company will be taxed on 100% of the sale or trade in value received on disposal.
buying outright
buying using a simple bank loan
buying under a Hire Purchase agreement
acquiring under a finance lease
acquiring under an operating lease (i.e. a simple rental)
You can only claim FYA on assets you have bought or are actually buying. You cannot claim FYA (or any other Capital Allowances for that matter) on assets which are being acquired under a lease agreement or a rental agreement.
100% FYA allowances are available against qualifying assets. These usually are plant and machinery, equipment, fixtures and fittings, commercial vehicles etc. At the moment, the 100% FYA is also currently available against certain environmentally friendly motor cars.
Essentially, the FYA allows you to write off the total cost of the asset against the business profits. So, if you spend £30,000 on a qualifying asset, £30,000 is deducted from your taxable business profits.
So, effectively, you will reduce your Corporation Tax bill by £6,000 (£30,000 x 20%)
You need to remember that when the asset is eventually disposed of, since you claimed 100% allowances on its original cost, the company will be taxed on 100% of the sale or trade in value received on disposal.
I appreciate I'm being a bit thick, but is the 100% FYA just removing the £14k CT liability that would otherwise arise from the car purchase? in other words
Scenario 1. Ltd Co has, prior to car purchase, CT bill of say £50k(these are made up figures!!) The company decides to buy the Tesla for £70k, the CT bill goes down to £36k.
Scenario 2. As above CT bill of £50k, company buys Tesla for £70k, CT bill stays at £50k.
Scenario 1. Ltd Co has, prior to car purchase, CT bill of say £50k(these are made up figures!!) The company decides to buy the Tesla for £70k, the CT bill goes down to £36k.
Scenario 2. As above CT bill of £50k, company buys Tesla for £70k, CT bill stays at £50k.
Edited by griffchris on Sunday 8th June 13:20
griffchris said:
Flippin' brilliant, thanks for your help everyone, looks like I can go ahead as planned then, should never have doubted my accountant! I still hope to get a Caterham in the next year or two, finances allowing (not a company purchase), so I can still claim to be a PHer...
OP - just remember it has to be a new car, so not a pre-reg, to qualify for the fya.Also bear in mind that when you sell, the proceeds will be added to your CT calculation for the year in question, resulting in paying back some of the tax - in other words, the allowance is not an absolute benefit.
Ref caterhams - the basic caterham makes a good company car! For cars without a co2 figure and engines under 1400cc, the bik is at 15% of list. For either the new turbo engine or the last 1.4 classic, bik would be roughly 3k a year.... not too bad...
DSLiverpool said:
My accountant says the Mitsubishi is a no brainer as long as I dont mind driving it - the money it frees up would by a decent garage toy basically for free.
However only leasing makes sense plus future values are up in the air - at Goodwood I am having a serious look at the Tesla
I think you will be surprised by the Tesla in many ways - I was. I am seriously considering one as my next car, coming from a Maserati GranTurismo SHowever only leasing makes sense plus future values are up in the air - at Goodwood I am having a serious look at the Tesla
It has been a while since I bothered with a company car but I seem to recall in my foggy mind that there was a limit to how much that could be offset against tax ie a car value of, say, £25k ????? ie if you contract hired a £50k car HMRC would only allow half of the payments against tax ????
This was introduced to stop people like myself contracting a DB9 or some other heavy metal
Can anyone clarify this or am I losing my mind?
This was introduced to stop people like myself contracting a DB9 or some other heavy metal
Can anyone clarify this or am I losing my mind?
Sorry to bump an old thread.
A Nissan Leaf salesman was selling me the snake oil of buying through the business rather than leasing, with PCP. He didn't mention the kick in the are when handing it back though!
So to summarise, I understand the 1st year benefit in CT reduction, my question is the CT liability when you give it back. Would the GFV value be added to your profit if buying under a PCP and handing it back at the end of term?
So ultimately the net benefit would be the CT saving based on list price minus GFV?
Would it not also be true that if you bought another when handing in, it would offset the increase providing the FYA scheme for evs is still in place?
A Nissan Leaf salesman was selling me the snake oil of buying through the business rather than leasing, with PCP. He didn't mention the kick in the are when handing it back though!
So to summarise, I understand the 1st year benefit in CT reduction, my question is the CT liability when you give it back. Would the GFV value be added to your profit if buying under a PCP and handing it back at the end of term?
So ultimately the net benefit would be the CT saving based on list price minus GFV?
Would it not also be true that if you bought another when handing in, it would offset the increase providing the FYA scheme for evs is still in place?
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