Accountant Chat – Free Electric Company Car 2020/21

Accountant Tax Guidance – Company Car Tax 2020/21 – Electric Cars

As an accountant, the team at Digivolve can help advise you on company car tax which is a common question.

We can deal with clients, in Forest Row, Haywards Heath, Burgess Hill and East Grinstead plus West Sussex and Surrey in fact any where in the United Kingdom.

We use software such as Xero and Quickbooks along with Receipt Bank to help make this as easy as possible.

Don’t forget to Contact us today to help understand your own company car tax position.

We’ll get you set up with Xero or Quickbooks and have everything running smoothly for you, allowing you to concentrate on your own business.

“Free” Company Car you say how?

The government is trying to encourage businesses to push electric cars.

Currently for the 2020/21 tax year a full electric car or a hybrid with range greater than 130miles on electric and emission below CO2 50g/km, benefit from a benefit in kind (BIK) rate of 0%.

Yes that’s right 0% benefit in kind. 

So What does this really mean for the tax position?

Say you have a profit before tax of £160,000. At 19% corporation tax this is a tax bill of £30,400. Leaving you with £129,600 cash to take as a dividend.

Let’s say you spent this £160,000 on a Porsche Taycan or a Tesla Model S or Tesla Model X for example instead.

As electric cars and low emission cars below CO2 50g/km attract 100% First year allowances, the whole cost can be offset against your tax bill.

Also as the there is no benefit in kind there is no class 1a employers NI to claim.

The business can then claim the insurance costs, servicing, and maintenance all as an additional cost meaning all these costs are 19% less than normal.

There is also the fact that to pay for tyres on your own private car for example you have to pay corporation tax at 19% and then take a dividend at best case 7.5%.

But I don’t have £160,000 spare to spend on a car?

Most people from experience are already paying for a car on some sort of finance deal so having the company pay for this direct will immediately mean more money for you personally each month at the same personal tax rates as you no longer need to take a dividend to pay for your car.

In order for this to work the car has to be on a hire purchase agreement so the ownership transfers to the business in full on day one and the car has to be brand new, or you are the first owner from a dealer, ex demo for example.

The £30,400 corporation tax saving can be spent on financing your car instead of paying HMRC the corporation tax so cash that would have otherwise been spent in tax can be spent for your own benefit.

There are some caveats in that when you sell the car in say two or three years time you have to pay tax on the sale of the car like a other income. 

How does this affect my personal tax?

Simple answer it doesn’t in 2020/21 as there is no benefit in kind, in future years a small charge of 1/2% will occur.

If this is of interest contact us to discuss your own circumstances and how we can help your business!

To find out more about – Xero

To find our more about – Quickbooks

For a one on one conversation to help you understand this please Contact us

Photo credit @ Auto Express Auto Express Photo Credit

Company Car Tax
Accountants Haywards Heath Forest Row East Grinstead Burgess Hill Porsche Taycan Company Car

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