Having a company car is often considered the epitome of being a businessperson, and, as times are beginning to favour a more environmentally friendly mode of transport, an electric company car is at the top of many wish lists.

But what are the benefits of having an electric company car, if any? And what can you claim as a business expense?

What’s your role in the business?

The benefits of having an electric company car vary depending on your role in the business – just like the tax benefits vary between a limited Company and a sole trader.

• Sole Trader

As a sole trader, you can claim for your vehicle if you use it for your business, including fuel, repairs, insurance, and tax and then simply disallow an estimate of your private use. You can also claim capital allowances on the purchase of the vehicle or lease payments on a leased vehicle.  You will have to make the same private disallowance.

Alternatively you can claim mileage for the business miles you do in the year, with accurate and up-to-date records required in order to validate your total mileage claim.

• Limited Company – Van or Commercial Vehicle

If you purchase a van or commercial vehicle outright, the VAT can be reclaimed on the purchase (if you are vat registered) and capital allowances claimed at 100%. 

If the van or commercial vehicle you purchase is leased, the total costs are claimed against the company profits and VAT can be reclaimed.

There will also be a benefit in kind (BIK) which will be taxed on you personally but only at a fixed rate of £3,600 and if your company also pays for all the fuel, there will be a fuel benefit charge of £688.

• Limited Company – Car

So, what about leasing a car as a limited company? In this case, 50% of the VAT can be reclaimed and the cost set against company profits, however there is an add back of 15% for cars emitting 111g/km or more of CO2.

This is definitely something to keep in mind

With regards to your personal tax, there will be a personal BIK based on the CO2 emissions and list price of the car as new. For example, if the list price of the car when new is £30,000 and the CO2 emissions are 100, you will have a BIK of 25%, which in this case would be £7,500 assuming it is petrol.

If the company also pays for your fuel you will receive a further BIK of £6,150 (25% of £24,600).

What about if I get a hybrid car?

If you were to purchase a hybrid car, the BIC will be greatly reduced based on the electric range of the vehicle. This can vary from 2% to 14% of the list price.

If your emissions are less than 50g/km or at 6%, the company will be able to claim capital allowances at a rate of 18%. The interest on any finance will also be an allowable expense.

What about if I buy a second hand electric car?

Whilst both Limited companies and sole traders can claim 100% first year allowance on the purchase of a brand new electric car, many businesspeople are opting for a second hand car in a bid to save money.

Unfortunately this would mean you would only receive 18% capital allowances, and the BIK is only 2%. You would also receive no fuel benefit if you charge at work or at a public charging point.

There would however be a fuel benefit if your company reimburses you for charging your car at home.

What do I do now?

It’s important to ensure you’ve fully researched all your options before making a decision. Just like your accounts, having a general understanding of everything will help you make informed business decisions.

If our team can help in any way, such as ensuring you’re making an informed choice, please get in touch on 01952 216872.