Are you looking to buy an electric car through your limited company? Electric cars can provide tax and financial benefits for limited company owners, but there are a few things you should keep in mind before making your purchase to ensure that you’re making the most of the grants and finance schemes available.
In this article, we’ll take a look at some of the key considerations when buying an electric car through a limited company so that you can be sure that you’re making a well-informed and sensible financial decision for your company and staff.
Here are 9 things that you need to know when buying an electric car through a limited company:
- You can get a grant for a discount on the price of some brand new low-emission vehicles. via the government’s Plug-in Grant, which offers up to 35% towards the cost of a new qualifying vehicle including cars, vans and motorcycles when purchased through a registered dealership.
- The Office for Zero Emission Vehicles (OZEV) runs a Workplace Charging Scheme. This voucher-based scheme provides support towards the up-front costs of the purchase and installation of electric vehicle charge points at your workplace. The grant covers up to 75% of the total costs of the purchase and installation of EV charge points (inclusive of VAT), capped at a maximum of £350 per socket and 40 sockets across all sites per applicant After applying using the online application form, successful applicants are issued with a unique identification voucher code by email, which can then be given to any OZEV-authorised commercial ChargePoint installer.
- VAT can be reclaimed on any car purchased for business use only, whether it is electric or otherwise. This effectively reduces the cost of the car by 20%, making it a more affordable option for business owners. You can also claim back the VAT on the cost of charging the vehicle too. Remember for HMRC purposes a commute between home and office is counted as personal rather than business travel.
- In comparison, if you decided to lease an electric car instead of purchasing through your company, you would be able to reclaim 50% of the VAT from the lease payments, even where there is some personal use. If leasing a car that is 100% used for business, then 100% of the VAT can be reclaimed.
- Limited companies can claim 100% first-year capital allowances on electric cars. This means that you can save money by deducting the entire cost of the electric car from profits before you pay tax (with no cap limiting the value of the vehicle to be eligible for this allowance).
- If you buy a car through the business, but intend to also use it for personal use this will create a ‘benefit in kind’ and your employees are required to pay some tax on the benefit they receive. The government heavily incentivises the use of electric vehicles with the tax due from employees using an electric vehicle being far lower than petrol or diesel models. From 6 March 2020, the ‘benefit in kind’ has been 0%, this rose to 1% from 6 March 2021, and again to 2% from 6 March 2022 but significantly less than the 37% due for the top gas-guzzling cars.
- Electric cars are currently exempt from the London Congestion Charge which means if your team works from London or regularly visits the capital for meetings or events, you could save significant fees! They also qualify for free parking in many car parks when using the electric charging points available.
- Vehicle Excise Duty (VED), more commonly known as road tax, is an annual tax charged to drivers and motorcyclists. Fully electric cars are exempt from paying VED to help support drivers who choose the most environmentally friendly cars and vans.
- Electric cars require a different type of insurance than traditional cars so you’ll need to make sure that you have the right coverage in place before you buy. Specific things to check include if charging cables are covered if they cause an accident such as a trip or fall if leased batteries are covered, and whether adaptors and charging points are covered for theft and damage too.
So, if you’re ready to go green and make the switch to electric, read on for more detail on the key things you need to know about electric vehicles to ensure you make the right purchase for your needs and business needs!
What Is An Electric Car?
An electric car is a vehicle that is powered by an electric motor instead of a petrol or diesel engine. They are a mode of transport that is becoming increasingly popular, due in part to concerns about the impact of traditional cars on the environment and the high cost of fuel.
Electric cars are efficient, quiet, and produce no emissions but they must be plugged into the electrical grid to recharge their batteries or recharge by regenerative braking. This means that models have a limited range and can take a long time to charge but technology in the EV sector is rapidly catching up with demand meaning charging times are reducing and range is increasing every year.
What Is A Limited Company?
A limited company is a type of business structure in the United Kingdom and is a legal entity that is separate from its owners meaning the liability of its members is limited to what they have invested or guaranteed in the company, not their personal finances. Ownership of a limited company is divided into shares, and shareholders are not liable for the debts of the company beyond the value of their shares. Limited companies are formed by registering with Companies House, and the company name must end with “limited” or “ltd.”
A limited company can be either private or public. A private limited company must have at least one shareholder and cannot offer shares to the public. A public limited company must have at least two shareholders and can offer shares to the public.
There are many benefits to setting up a limited company, including tax efficiency for business purchases like company cars and personal asset protection. Limited companies are also easy to set up and manage, making them a popular choice for businesses of all sizes.
Why Buy An Electric Car Through Your Limited Company?
As the world becomes increasingly more eco-conscious, more and more people are looking for ways to reduce their carbon footprint. One way to do this is to purchase an electric car. While electric cars are often more expensive than traditional petrol and diesel-powered cars, they offer many benefits that make them well worth the investment. Here are just some of the reasons why you might want to buy an electric car through your limited company.
- As above, tax efficiency is another benefit of owning a limited company and this is true when it comes to buying an electric car through your limited company.
- You can claim back the VAT on the purchase price of the car.
- You can also claim back any expenses related to charging the car, such as the installation of a workplace charger.
- If you use your electric car for business purposes, you can claim back 100% of the cost of fuel.
- You won’t have to pay vehicle excise duty (road tax) on electric cars
- Electric cars are much cheaper to operate as well as produce zero emissions, which makes them much better for the environment compared to conventional internal combustion engines.
- Many local councils offer free parking for EVs, charging points are usually close to the entrance of supermarkets and service stations, and there is no congestion charge for owners of electric vehicles in London. Whilst you will need to apply for the exemption, this can all adds up to a tidy saving in running costs and travel charges when you go electric.
- Electric vehicles only cost around 2-3p per mile to run, which is considerably less than the average 16p per mile for petrol and diesel vehicles, especially when fuel prices are at an all-time high nudging £2 a litre in many places around the UK.
As you can see, there are plenty of environmental and financial incentives for limited companies to invest in electric cars but while electric cars are becoming more and more popular, they’re still relatively new technology. That means the cars available to you may still be expensive and whilst fuel may not be required, the cost of charging stations and batteries when you’re budgeting for your new car can all still add up.
How To Buy A Car Through Your Company
To buy a car through a limited company, it’s not as simple as buying any old car and calling it a business vehicle, you will need to purchase the vehicle through specific business schemes and register it as an asset of the business. Here is what you need to know.
To buy a business vehicle, you will need a business bank account (which is a requirement of all limited companies anyway) and a business account set up with a car dealership or broker. You will also need to provide proof of your company’s existence including its VAT registration number if you have one, and may need to share information on its turnover to meet affordability checks.
Once those logistics are taken care of you can purchase a business car. The difference in the process from here in comparison to a regular customer is that you may have access to special financing options that aren’t available to private individuals, the car purchased will be subject to VAT, and the car will need to be registered in your company’s name, and appropriate business insurance cover will need to be taken out.
When you have paid for the car through your limited company, you may be able to claim back VAT on the purchase price and can usually write off the cost of the vehicle against your company’s taxes.
Claiming Grants For Electric Cars
When making use of the purchase schemes and grants available for business electric car purchases you will need to apply to the relevant organisation offering the incentive and meet their qualifying criteria. The application process usually involves providing evidence that you are a registered business so you should be prepared to find proof of:
- your registered business status and company number
- VAT registration number if the application
- Not having exceeded any limits on funding support available within a timeframe
- Needing the funding offered and having relevant permissions from any organisation required. (Consider if landlord permission is needed when installing electric charging points at your workplace).
Environmental Advantages Of Electric Cars For Your Company
As we touched on briefly before, one of the main advantages of investing in an electric car for your company is that they are much better for the environment. Electric cars produce zero emissions, which means they don’t contribute to air pollution or global warming. In addition, electric cars are much more efficient than gas cars and use less energy overall. As a result, electric cars can help your company save money on fuel costs while also reducing your company’s carbon footprint.
Another environmental advantage of electric cars is that they are much quieter than gas cars. This can be a major benefit for businesses that make local deliveries or operate in areas where noise pollution is a concern.
There are many other advantages to electric cars, but these are some of the most notable. Overall, electric cars offer a great way for businesses to save money and operate more efficiently while also doing their part to protect the environment.
If you’re thinking about purchasing an electric car for your business, we recommend working with a reputable dealership or broker that specialises in business car sales. This will ensure that you get the best possible deal on your purchase and can take advantage of all the financial incentives that are available to businesses.
We hope you now have a good overview of what you need to know when buying an electric car through a limited company so that you can establish if going electric is the right decision for your business financially.
To recap, there is no one size fits all answer, you will need to take into consideration the price of the car, the amount of business mileage you need to cover, whether staff will use the vehicle for personal use as well as business and whether you qualify for any funding.
You will need to consider the total cost of ownership alongside the tax benefits when comparing electric cars to traditional petrol or diesel vehicles and should work with your accountant to see if there are any tax benefits you qualify for when buying an electric car through your limited company. Your accountant can also assist in declaring your purchase of an electric car through your company properly and reporting the correct taxes due.
With a little planning and preparation, you can make the switch to an electric car with confidence and when purchasing through a business, you’ll be able to take advantage of plenty of financial incentives that are available whilst doing your part to help the environment.