Take another look at company cars

After the bitter disappointment of no free Wi Fi (!) you may want to take a look at the benefit of using an electric company car from 6 April 2020. Although the benefit in kind on these cars is currently based on 16% of list price, this rate will drop to 0% from 6 April 2020 and then only be 1% and 2% respectively for the two subsequent tax years.

Examples

Let’s be flash and look at a Tesla S which has a current list price of £80,000:

2019/2020

At 16% the taxable benefit would be £12,800 and so a 45% tax payer would have to pay £5,760 in tax. There would also be Class 1A national insurance of £1,766 payable by the company.

2020/2021 and beyond

At 0% the taxable benefit would be £0 and so a 45% tax payer would not have any tax to pay and there would be no national insurance. Tax in 2021/2022 and 2022/2023 would be £360 and £720 respectively.

Capital allowances

The company will be able to benefit from full tax relief on the capital cost of the car even if it is purchased through contract purchase. At 19% this brings the ‘real’ cost to the company down to £64,800.

Conclusion and final comment

This all points to the conclusion that shareholders who are looking to acquire an electric car should route the purchase through the company. The company will enjoy full tax relief on the cost whereas the shareholder will pay very little tax in respect of the benefit. This compares favourably to the scenario whereby cash is extracted from the company at high tax rates in order to purchase a car.

There may also be tax efficient opportunities for cars which are currently held personally to be transferred to a company.

Of course there are commercial considerations about electric cars such as whether today’s models will become obsolete as technology advances – but that is a different discussion.

 

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