EV as a business owner
Discussion
Hello.
Apologies if this has been covered before but I was wondering if there's any business owners out there who can explain (in real terms), the overall financial benefits to running a fully electric car.
I'm considering a Tesla Model 3 but there's conflicting information out there as to the tax benefits and what it all means in the real world.
Cheers.
Apologies if this has been covered before but I was wondering if there's any business owners out there who can explain (in real terms), the overall financial benefits to running a fully electric car.
I'm considering a Tesla Model 3 but there's conflicting information out there as to the tax benefits and what it all means in the real world.
Cheers.
if the company buys the car and you use it for personal reasons then its basically as follows:
The company can offset the depreciation against company profits. There is a 100% first year allowance where you can depreciate the full cost of the car in the first year, however whatever the company sells the car for when it disposes of the car goes towards profit. In essence you only offset the depreciation over the lfe of the car.
Costs such as maintenance, tyres, insurance etc can also be offset against profit.
The flip side is you have a benefit in kind of 1% of the value of the car this year, 2% for next year.
If you do a lot of business miles you will only be able to pay yourself 4p per mile, if the car was yours you can claim 45p a mile.
Some immediately assume its worth doing, the truth is it depends on how much you think the car is going to depreciate, how many business miles you do and how you pay yourself from company profits.
For rough man maths take a 50k car, depreciation of 5k a year, 1k a year insurance and tyres, 8k business miles a year.
The company will offset 6k a year against profit for depreciation and costs
However, you'll also pay tax on 1% BIK, 50k, 1% is £500, To cover that the company would need to pay an extra £500 to retain the same take home salary.
The company can also pay you 8k x 4p for mileage = £320 tax free
The company profits will be reduced by £6k+£1000+£320, lets call it £7k. Assuming that would appear as dividend, 19% goes in corp tax (£1190), 32% goes in personal tax (£1860), so the money you don't receive is £3950
The car has cost you about £4k a year.
If you took took the £3950 instead, the costs would still be £7k, but you get 8000x 45p = £3600 allowance, you'd be up £7500 to fund a £7000 running costs of the car. .
Company profits would however be down by the £3600 fuel its paying you direct and tax free but so would the tax bill.
Higher business miles would increase the benefit of you owning the car yourself, but would also result in higher depreciation and running costs to balance.
Lower mileage and it goes the other way making the company car option better.
Buying a used car can reduce the depreciation making buying your own cheaper.
Your personal situation and how the car is funded can also have a factor.
Its different againt for partnerships and self employed.
The company can offset the depreciation against company profits. There is a 100% first year allowance where you can depreciate the full cost of the car in the first year, however whatever the company sells the car for when it disposes of the car goes towards profit. In essence you only offset the depreciation over the lfe of the car.
Costs such as maintenance, tyres, insurance etc can also be offset against profit.
The flip side is you have a benefit in kind of 1% of the value of the car this year, 2% for next year.
If you do a lot of business miles you will only be able to pay yourself 4p per mile, if the car was yours you can claim 45p a mile.
Some immediately assume its worth doing, the truth is it depends on how much you think the car is going to depreciate, how many business miles you do and how you pay yourself from company profits.
For rough man maths take a 50k car, depreciation of 5k a year, 1k a year insurance and tyres, 8k business miles a year.
The company will offset 6k a year against profit for depreciation and costs
However, you'll also pay tax on 1% BIK, 50k, 1% is £500, To cover that the company would need to pay an extra £500 to retain the same take home salary.
The company can also pay you 8k x 4p for mileage = £320 tax free
The company profits will be reduced by £6k+£1000+£320, lets call it £7k. Assuming that would appear as dividend, 19% goes in corp tax (£1190), 32% goes in personal tax (£1860), so the money you don't receive is £3950
The car has cost you about £4k a year.
If you took took the £3950 instead, the costs would still be £7k, but you get 8000x 45p = £3600 allowance, you'd be up £7500 to fund a £7000 running costs of the car. .
Company profits would however be down by the £3600 fuel its paying you direct and tax free but so would the tax bill.
Higher business miles would increase the benefit of you owning the car yourself, but would also result in higher depreciation and running costs to balance.
Lower mileage and it goes the other way making the company car option better.
Buying a used car can reduce the depreciation making buying your own cheaper.
Your personal situation and how the car is funded can also have a factor.
Its different againt for partnerships and self employed.
Heres Johnny said:
if the company buys the car and you use it for personal reasons then its basically as follows:
The company can offset the depreciation against company profits. There is a 100% first year allowance where you can depreciate the full cost of the car in the first year, however whatever the company sells the car for when it disposes of the car goes towards profit. In essence you only offset the depreciation over the lfe of the car.
Costs such as maintenance, tyres, insurance etc can also be offset against profit.
The flip side is you have a benefit in kind of 1% of the value of the car this year, 2% for next year.
If you do a lot of business miles you will only be able to pay yourself 4p per mile, if the car was yours you can claim 45p a mile.
Some immediately assume its worth doing, the truth is it depends on how much you think the car is going to depreciate, how many business miles you do and how you pay yourself from company profits.
For rough man maths take a 50k car, depreciation of 5k a year, 1k a year insurance and tyres, 8k business miles a year.
The company will offset 6k a year against profit for depreciation and costs
However, you'll also pay tax on 1% BIK, 50k, 1% is £500, To cover that the company would need to pay an extra £500 to retain the same take home salary.
The company can also pay you 8k x 4p for mileage = £320 tax free
The company profits will be reduced by £6k+£1000+£320, lets call it £7k. Assuming that would appear as dividend, 19% goes in corp tax (£1190), 32% goes in personal tax (£1860), so the money you don't receive is £3950
The car has cost you about £4k a year.
If you took took the £3950 instead, the costs would still be £7k, but you get 8000x 45p = £3600 allowance, you'd be up £7500 to fund a £7000 running costs of the car. .
Company profits would however be down by the £3600 fuel its paying you direct and tax free but so would the tax bill.
Higher business miles would increase the benefit of you owning the car yourself, but would also result in higher depreciation and running costs to balance.
Lower mileage and it goes the other way making the company car option better.
Buying a used car can reduce the depreciation making buying your own cheaper.
Your personal situation and how the car is funded can also have a factor.
Its different againt for partnerships and self employed.
Thanks for your reply, very useful information.The company can offset the depreciation against company profits. There is a 100% first year allowance where you can depreciate the full cost of the car in the first year, however whatever the company sells the car for when it disposes of the car goes towards profit. In essence you only offset the depreciation over the lfe of the car.
Costs such as maintenance, tyres, insurance etc can also be offset against profit.
The flip side is you have a benefit in kind of 1% of the value of the car this year, 2% for next year.
If you do a lot of business miles you will only be able to pay yourself 4p per mile, if the car was yours you can claim 45p a mile.
Some immediately assume its worth doing, the truth is it depends on how much you think the car is going to depreciate, how many business miles you do and how you pay yourself from company profits.
For rough man maths take a 50k car, depreciation of 5k a year, 1k a year insurance and tyres, 8k business miles a year.
The company will offset 6k a year against profit for depreciation and costs
However, you'll also pay tax on 1% BIK, 50k, 1% is £500, To cover that the company would need to pay an extra £500 to retain the same take home salary.
The company can also pay you 8k x 4p for mileage = £320 tax free
The company profits will be reduced by £6k+£1000+£320, lets call it £7k. Assuming that would appear as dividend, 19% goes in corp tax (£1190), 32% goes in personal tax (£1860), so the money you don't receive is £3950
The car has cost you about £4k a year.
If you took took the £3950 instead, the costs would still be £7k, but you get 8000x 45p = £3600 allowance, you'd be up £7500 to fund a £7000 running costs of the car. .
Company profits would however be down by the £3600 fuel its paying you direct and tax free but so would the tax bill.
Higher business miles would increase the benefit of you owning the car yourself, but would also result in higher depreciation and running costs to balance.
Lower mileage and it goes the other way making the company car option better.
Buying a used car can reduce the depreciation making buying your own cheaper.
Your personal situation and how the car is funded can also have a factor.
Its different againt for partnerships and self employed.
Interesting info, Heres Johnny.
This seems like the sort of situation that's calling out for a simple online calculator. Enter a director's salary, dividends, company miles, personal miles, car purchase cost etc etc and it tells you the overall cost/benefit of each option both personally and for the business.
Unless one already exists? I haven't found one. (They all seem to be focused on EV vs ICE, or for employees only.)
This seems like the sort of situation that's calling out for a simple online calculator. Enter a director's salary, dividends, company miles, personal miles, car purchase cost etc etc and it tells you the overall cost/benefit of each option both personally and for the business.
Unless one already exists? I haven't found one. (They all seem to be focused on EV vs ICE, or for employees only.)
The big one for me, in buying the car outright, was the immediate saving in corporation tax. I happened to have got to the end of the year with £30,000 excess profit in the business. If I had not have bought an EV with it, that would be almost £6,000 in CT right there.
I take the point above that it’s really only the tax on the depreciation that I’m saving, but I may run the car into the ground, who knows?
I take the point above that it’s really only the tax on the depreciation that I’m saving, but I may run the car into the ground, who knows?
Heres Johnny said:
if the company buys the car and you use it for personal reasons then its basically as follows:
The company can offset the depreciation against company profits. There is a 100% first year allowance where you can depreciate the full cost of the car in the first year, however whatever the company sells the car for when it disposes of the car goes towards profit. In essence you only offset the depreciation over the lfe of the car.
Costs such as maintenance, tyres, insurance etc can also be offset against profit.
The flip side is you have a benefit in kind of 1% of the value of the car this year, 2% for next year.
If you do a lot of business miles you will only be able to pay yourself 4p per mile, if the car was yours you can claim 45p a mile.
Some immediately assume its worth doing, the truth is it depends on how much you think the car is going to depreciate, how many business miles you do and how you pay yourself from company profits.
For rough man maths take a 50k car, depreciation of 5k a year, 1k a year insurance and tyres, 8k business miles a year.
The company will offset 6k a year against profit for depreciation and costs
However, you'll also pay tax on 1% BIK, 50k, 1% is £500, To cover that the company would need to pay an extra £500 to retain the same take home salary.
The company can also pay you 8k x 4p for mileage = £320 tax free
The company profits will be reduced by £6k+£1000+£320, lets call it £7k. Assuming that would appear as dividend, 19% goes in corp tax (£1190), 32% goes in personal tax (£1860), so the money you don't receive is £3950
The car has cost you about £4k a year.
If you took took the £3950 instead, the costs would still be £7k, but you get 8000x 45p = £3600 allowance, you'd be up £7500 to fund a £7000 running costs of the car. .
Company profits would however be down by the £3600 fuel its paying you direct and tax free but so would the tax bill.
Higher business miles would increase the benefit of you owning the car yourself, but would also result in higher depreciation and running costs to balance.
Lower mileage and it goes the other way making the company car option better.
Buying a used car can reduce the depreciation making buying your own cheaper.
Your personal situation and how the car is funded can also have a factor.
Its different againt for partnerships and self employed.
This is really helpful, but how does it compare if a lease was taken out on a £50k EV? The company can offset the depreciation against company profits. There is a 100% first year allowance where you can depreciate the full cost of the car in the first year, however whatever the company sells the car for when it disposes of the car goes towards profit. In essence you only offset the depreciation over the lfe of the car.
Costs such as maintenance, tyres, insurance etc can also be offset against profit.
The flip side is you have a benefit in kind of 1% of the value of the car this year, 2% for next year.
If you do a lot of business miles you will only be able to pay yourself 4p per mile, if the car was yours you can claim 45p a mile.
Some immediately assume its worth doing, the truth is it depends on how much you think the car is going to depreciate, how many business miles you do and how you pay yourself from company profits.
For rough man maths take a 50k car, depreciation of 5k a year, 1k a year insurance and tyres, 8k business miles a year.
The company will offset 6k a year against profit for depreciation and costs
However, you'll also pay tax on 1% BIK, 50k, 1% is £500, To cover that the company would need to pay an extra £500 to retain the same take home salary.
The company can also pay you 8k x 4p for mileage = £320 tax free
The company profits will be reduced by £6k+£1000+£320, lets call it £7k. Assuming that would appear as dividend, 19% goes in corp tax (£1190), 32% goes in personal tax (£1860), so the money you don't receive is £3950
The car has cost you about £4k a year.
If you took took the £3950 instead, the costs would still be £7k, but you get 8000x 45p = £3600 allowance, you'd be up £7500 to fund a £7000 running costs of the car. .
Company profits would however be down by the £3600 fuel its paying you direct and tax free but so would the tax bill.
Higher business miles would increase the benefit of you owning the car yourself, but would also result in higher depreciation and running costs to balance.
Lower mileage and it goes the other way making the company car option better.
Buying a used car can reduce the depreciation making buying your own cheaper.
Your personal situation and how the car is funded can also have a factor.
Its different againt for partnerships and self employed.
Takemeaway said:
This is really helpful, but how does it compare if a lease was taken out on a £50k EV?
Price of the car is largely irrelevant. A lease cost is an operating expense in the year it occurs, if there's any personal use then only half the VAT can be claimed back. BIK etc all still apply as do mileage rates etc which have changed since I wrote the previous point but still quite low coupled with increasing electricity prices. Effectively the lease cost is swapped for annual depreciation, there is no asset on the books, and depending on the companies desire to borrow for other purposes you may need to be mindful there's a liability on their books from the lease.Gassing Station | EV and Alternative Fuels | Top of Page | What's New | My Stuff