Electric vehicles (EVs) are revolutionising the automotive industry, offering a cleaner and more sustainable alternative to traditional petrol and diesel vehicles. In the United Kingdom (UK), the government has introduced a range of incentives to encourage the adoption of EVs, making them not only an eco-friendly choice but also a financially savvy one. When purchasing an electric vehicle through a UK company, the potential tax savings represent a compelling reason to make the switch. Let's explore how buying an EV can lead to significant tax benefits.
Capital Allowances
Businesses investing in electric vehicles may be eligible for FYA (First year allowance), allowing them to deduct the full cost of qualifying EVs from their taxable profits in the year of purchase. Here are some rules that need to be adhered to:
• The car is ‘unused and not second hand’ and is first registered on or after 17 April 2002.
• It is a fully electric vehicle or a car with 0g/km of CO2 emissions.
• Must be purchased outright or on a hire purchase agreement through the business.
You cannot claim the VAT back unless the vehicle is solely used for business use. See below a calculation of potential tax savings for both an EV solely for business use and an EV for business and personal use. (Both examples adhere to the above rules).
Business use only EV - £50,000 + VAT
£50,000 qualifies for FYA as a capital allowance – This means £50,000 is deductible from your taxable profits in the year the vehicle was purchased – This would save you between £9,500 to £12,500 in corporation tax.
£10,000 is the VAT element and can be claimed on your next VAT return – This would reduce your next VAT bill by £10,000.
Total savings – Between £19,500 to £22,500 across corporation tax and VAT.
Business & Personal use EV - £50,000 + VAT
£60,000 qualifies for FYA as a capital allowance – This means £60,000 is deductible from your taxable profits in the year the vehicle was purchased – This would save you between £11,400 to £15,000 in corporation tax.
Total savings – Between £11,400 to £15,000 in corporation tax.
The above shows the treatment of electric cars, however if the electric vehicle you purchase is a commercial vehicle (e.g. Van) then even with personal use you can still claim the VAT back, so it would be treated the same as a business use only electric car.
EV Leasing
Not all businesses will be able to buy an EV outright or don’t want to be tied into a long hire purchase agreement, so the other option to consider is EV leasing and how this can still save you money.
Leasing an electric vehicle still has tax benefits that are worth considering and this even brings hybrids into consideration as long as they have CO2 emissions of 50g/km or below. You can claim 100% of the net cost for these types of vehicles but dependant on if there is personal use depends on what VAT you can claim. For business only you can claim 100% of the VAT but for business and personal use you can claim only 50% of the VAT. Again, if this vehicle is classed as commercial you can claim 100% of the net cost and 100% of the VAT.
Other factors
Plug-in Vehicle Grants: The UK government provides financial incentives in the form of plug-in vehicle grants to encourage the purchase of electric vehicles. These grants can significantly reduce the upfront cost of buying an EV, making it more affordable for consumers. Purchasing an EV through a UK company may streamline the process of accessing these grants, ensuring that buyers can take full advantage of the available incentives.
Vehicle Excise Duty (VED) Exemptions: Electric vehicles are exempt from vehicle excise duty, commonly known as road tax. This exemption applies to all fully electric vehicles, regardless of their purchase price. By purchasing an EV through a UK company, buyers can enjoy ongoing savings on road tax, contributing to lower ownership costs over the lifetime of the vehicle. In 2025 electric vehicles will no longer be exempt from VED, which is worth noting.
Congestion Charge Exemptions: In certain cities, electric vehicles are exempt from congestion charges, providing additional savings for urban commuters. By purchasing an EV through a UK company, buyers can benefit from these congestion charge exemptions, reducing the cost of driving in congested city centres and promoting cleaner air quality in urban areas.
Conclusion
Buying an electric vehicle through a UK company offers compelling tax savings and financial incentives that make the switch to EVs even more appealing. From plug-in vehicle grants and road tax exemptions to company car tax benefits and capital allowances, the tax advantages of purchasing an EV in the UK are significant. By embracing electric vehicles, consumers and businesses can not only reduce their environmental impact but also enjoy substantial tax savings.
If you want to discuss this further or require us to help with your accounting needs, please contact us today.
Please note this blog is for educational purposes. The information provided does not constitute financial advice or recommendation and should not be considered as such.
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