With the price of fuel continually rising, along with the sale of new petrol and diesel cars ending in 2030, the popularity of electric cars is rocketing.
Alongside the cost savings, another huge advantage of an electric car is that they reduce harmful emissions, but did you know that they also present tax advantages?
Electric cars come with many cost-saving benefits, including being exempt from road tax and congestion charges, plus the installation of electric charge points being eligible for Capital Allowances.
However, the way you obtain your company car can present different advantages for you and your business.
Buying an electric car
When you purchase an electric car outright or opt for hire-purchase, you can claim Capital Allowances.
They are entitled to first-year allowances which allow the cost of the car from your pre-tax profits to be deducted for that accounting period.
Furthermore, if the car is exclusively used for business-related travel, you may be able to reclaim the VAT incurred when the car was purchased. However, the business must be VAT-registered for this.
In the circumstance that the car is also used for personal use, VAT cannot be reclaimed.
Be aware that if the Capital Allowances that have been claimed over the life of the vehicle exceed the cost, less disposal proceeds to you using a balancing charge.
There is also Corporation Tax relief on the hire purchase interest that the company must pay over the life of the finance deal, should you choose this option.
The Government also incentivises the purchase of electric vehicles through the plug-in car grant, which currently provides up to £1,500 for electric vehicles that cost less than £32,000.
Leasing an electric car
Rather than purchasing an electric car, you may choose to spread the cost by leasing the vehicle.
This option also allows you to deduct the cost of leasing from your taxable profits but does forfeit the Capital Allowances that are available when you buy the vehicle.
As with purchasing, VAT may be claimed if the vehicle is used for business use only. If used for private use, up to 50 per cent of the VAT could be reclaimed.
Financing the vehicle through Personal Contract Purchase (PCP) is usually classified in a similar way to leasing.
However, should the balloon payment (a payment to own the vehicle outright) amount to below the expected market value of the car, first-year Capital Allowances could apply.
Of course, regardless of how you choose to obtain an electric company car, they offer a range of savings that can be seen daily, such as fuel costs.
Considering switching to an electric company car? Contact us for advice.