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Tuesday 26th March 2019

Why dentists with a company shouldn’t buy an electric car until April 2020

The last few years have seen dramatic changes in the development of cars. Diesel cars are now known to be very polluting. There’s been a lot of negative press coverage and tax rates are increasing for diesel company cars. In fact, sales of diesel cars will be banned in the UK from 2040.

On the other hand, companies such as Tesla and Nissan are developing electric cars that are aiming for the mainstream car market. These cars are becoming more affordable, with greater mileage ranges as battery technology improves.

In April 2020 tax rates for electric company cars will drop dramatically. So, if you’re thinking of getting one, buying it through your limited company can save you tax.

There are 2 separate tax issues with a company car:

Firstly, the initial costs of the car – how much can you offset against your corporation tax bill?

Secondly, you’ll have to pay extra tax each year because you’re getting a “free benefit” from the company (using the company’s car) instead of your own.  

Tax relief when you buy the car

For fossil fuelled cars currently on sale in the UK, a business can only claim up to 18% of the cost of the car against tax each year.

However, the company can claim for the full cost of an electric car as a tax deduction in the year you buy it.

Example:

The company buys a Nissan Leaf costing £30,000. You reduce your company’s next tax bill by an impressive £5,100, so the effective net cost of car is £24,900.  It is important to note that the car needs to be new and first registered to the company.  Second hand electric or hybrids do not qualify for a full tax deduction. 

Tax charge each year for personal use of a company car

As a director of your company, most of the time you use your company car, it will be for private journeys. This includes commuting to and from your work (see our article here). HMRC will expect you to pay extra tax and national insurance, because you’re getting a “free benefit” from the company for your private (non-business) use of the car.

From April 2020 the Taxman will slash the electric car benefit rate from 16% to just 2%. Here’s an example for what your new tax bill would be:

You buy a new electric car and its list price is £30,000

The amount of your benefit is £600 (£30,000 x 2%)

You pay £120 tax as basic rate tax payer.

The company pays £83 national insurance

Total annual cost: £203

You’ll need to pay this £203 every year that you have the car. But you have saved £5,100 in corporation tax, so the overall savings are still great.

The car be used as a second car for your partner and children and the benefit rate stays the same for you.

Also, if you want to install a charging point at your home and/or place of work, the company can pay and save even more corporation tax. There are grants available help toward the cost of installations.

Hybrids

Some hybrids will also have a rate of 2%, but only if they have a high electric motoring range - that is, they can travel a longer distance using only the electric battery. If the motoring range is lower, the tax increases.

However, the company can still claim the full cost of the buying a hybrid car against tax in the year it buys it, as long as the CO2 emissions are below 75g/km.

Self-employed

You can claim for full the cost against tax in year you buy it, reduced for private use percentage. Unfortunately, the figures don’t stack up for self-employed dentists due to the small amount of business use on cars.

Unless you are a self-employed locum dentist driving high mileages every year, it wouldn’t be beneficial to purchase an electric car for tax reasons alone.

Finding electric and hybrid cars

From a Citroen C-Zero to a Porsche Panamera Sport Turismo and everything else in between.  There is a great website called Comcar that will help you easily search through all the makes and models with a CO2 emission figure of 0-75g/km.

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XERO CERTIFIED ONLINE ACCOUNTANTS

We will link your business bank account to Xero software. All your income and expenses will feed directly in to Xero. This saves you time in preparing your year end paperwork, and you can even store your documents in Xero