Tesla – an electric dream or an expensive nightmare?
A client recently asked me to look into the implications of buying an electric company car. There are certainly some very strong incentives to go electric if you are looking to buy a company car including the following:
- 100% First Year Allowance for business owners to April 2021
- UK plug in car grant of £4,500
- Reduced Employer Class 1A national insurance contributions
- Exemption from London congestion charge
- Reduced Benefit in Kind (BiK) taxation for company car drivers
Well that is the stuff that dreams are made of, isn’t’ it? Or will this dream turn into a nightmare.
Firstly, though you will be paying reduced Class 1A contributions (2018-19 13% Tesla, 37% combustion engine) you will still have to pay these. The same is true for the BiK. The company car tax payable by an employee is based on the vehicle’s P11D value multiplied by the appropriate BiK rate (determined by the car’s CO2 and fuel type) and the employee’s income tax rate providing significant savings over high CO2 emitting vehicles. Battery electric vehicles offer the lowest BiK rate of any fuel type. A P11D will have to be submitted to the Revenue which may be an additional cost to your company. There will be less to pay than on a conventional combustion car but you will still have to pay further tax and national insurance contributions.
The 100% write down is again a popular incentive but two things to be aware of. Firstly, when you sell the vehicle you may have to repay some of the write down depending on whether a profit was made. Secondly, as a car with dual purpose, ie, both business and personal, you won’t be able to reclaim the VAT although some relief is allowable through the corporation tax on the write down. Finally, these incentives are only available on a new purchase and not on second hand vehicles.
So, dream or nightmare? IF you are convinced that a company car is the way forward, or already have one, then a look at the electric market is well worth it. However, I still believe that the most tax efficient way to manage your business miles is to use a personal car and claim mileage. Furthermore, the rates and incentives are continually changing and the electric car market is relatively new; what seems like the dream like investment now could become that tax nightmare in the future!
If you’d like further information about electric cars please do contact us.
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