18 Oct, 2021 09:55 AM
Admin Category: Corporation Tax,

Electric Cars in Limited Companies

A large number of firms provide company automobiles to their employees, especially if their profession needs them to travel frequently. However, the tax climate surrounding company cars has evolved over time.

We are frequently questioned if purchasing a car through the company is beneficial. Historically, our response has been "No." It's too complicated, and you'll end up with a large tax bill in your personal capacity." This was the answer because any personal use is considered a fringe benefit (a benefit to the employee), which is taxable in your self-assessment tax return and can add up to a lot of money. Buying a car for your business made sense only if it was used exclusively for business.

With the government's push for electric vehicles, there is now an opportunity to purchase a zero-emission, totally electric, and brand-new vehicle and the fringe benefit is tiny and manageable even if you use it for private purposes as well.

This blog goes over some of the items to consider, as well as the potential savings and more administrative work you'll have to undertake.

In the case of a purchase, the VAT treatment is as follows:

Any car that is utilized primarily for business can be reclaimed for VAT. Remember that your daily journey between home and office counts as personal travel rather than professional travel for HMRC reasons.

If the car will be used for both personal and commercial purposes, the VAT treatment will be the same whether you acquire it personally or through your company: you will not be able to recover any of it.

This may result in a 20% levy on your vehicle, which you must weigh against the tax savings from your company.

Employer Relief from Corporation Taxes:

When a car is purchased brand new (strictly for the first registered owner), the employer can claim a capital allowance of 100% of the purchase price if the vehicle is totally electric or has a CO2 rating of less than 50g. In the year of purchase, a £30,000 purchase would cut your taxable profit by £30,000 and result in a corporation tax savings of £5,700 (£30,000 x 19%).

However, any revenues from the sale of the car will be subject to corporate tax at the rate in effect at the time, which is presently 19 percent. If you sold the automobile for £20,000 after two years, you'd have to pay £3,800 in corporate tax.

The employer will also be eligible for corporation tax savings on the vehicle's maintenance and insurance costs. For example, if the corporation pays £2,000 in annual maintenance expenditures, the tax savings would be £380.

Employers' National Insurance:

There is an Employers’s NI levy of 13.8 percent per year, regardless of the employee's benefit in kind (BiK) value. Employers NI would be £41.40 for a BiK of £300.

What does the business need to do in order to comply?

The corporation will be required to meet various statutory obligations on an annual basis.

- P46 (vehicle), which informs HMRC that an employee is given an automobile for personal use.

-P11D, which is given to the employee to declare the benefit in kind on their self-assessment tax return. Due to the use of a zero-emission vehicle, this is a need even if the P11D is NILL.

-Where there are PAYE and National Insurance charges, a P11d(b) is necessary.

The Employee's Tax:

Contact Taj Accountants

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  • Save taxes
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  • Manage your business accounts throughout the year
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DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you contacting Taj Accountants for further assistance.

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