This is a question I have been getting a lot from clients recently so I thought it would be worth looking at this in detail and mapping out some figures. The answer (as you would typically expect to receive from an accountant) is… MAYBE.
Read below to find out more:
Capital allowances are taxable deductions that businesses get from purchasing capital items (such as equipment, computers and furniture).
Usually, company cars do not qualify for full capital allowances. However, a Tesla, or any commercial vehicle with CO2 emissions of 75 g/km or less, qualifies for a full 100% corporation tax deduction in its first year. The car must be purchased as new by the company to qualify for this relief.
If the car is bought second hand the capital allowance is 18% of the value of the car each year until the value runs down to zero.
Benefits in kind apply where a driver has a company car available for their own personal use, even if it is just for one day. The benefit-in-kind is treated as additional income and is taxed as such. It is very difficult to provide evidence that a vehicle is not used privately, and therefore the assumption in most cases is that there is an element of private use.
The value of the income is determined by the list price of the car (including accessories) and its CO2 emissions. For 2019/20 low emission cars (up to 50 g/km) are taxed at 16% of the list price. This drops down to 2% in 2020/21.
For a Tesla with a list price of £35k, this would mean an additional annual income of £5,600 in 2019/20 and £700 in 2020/21 – taxed at 20%, 40% or 45% on the driver. The company would also pay national insurance at 13.8% of these figures.
Normally there is also a taxable fuel benefit when a driver uses a company vehicle for their own personal use. With electric cars, however, electricity is not classified as a fuel and there is no further taxable fuel benefit for the driver.
Where the driver of the electric vehicle pays for the electricity to power it, either from their domestic supply or by charging at a roadside station, the company may reimburse the employee for that cost. With a roadside charge, it is easy to see what the total cost is, but it is not so easy to calculate the cost per mile when charging from a domestic supply.
For simplicity, companies can pay the driver 4p per mile to reimburse them for the cost of the electricity used for business journeys, with no tax implications. This rate only applies to company-owned electric cars where the electricity is paid for privately.
Where the company allows drivers to charge their own electric vehicles at the workplace, there is no taxable benefit for the provision of that free electricity.
For this tax exemption to apply, the charging facilities must be provided at or near the workplace. This tax exemption does not apply if the employer reimburses the costs of charging the employee’s own vehicle away from the workplace, such as at a motorway service station.
Where the business installs charging points for electric vehicles it can claim a 100% capital allowance for those costs.
VAT is not reclaimable unless the vehicle is used exclusively (100%) for business.
It is notoriously difficult to prove 100% business use and it is the company’s responsibility to evidence full business use. Such evidence may be;
Any documentation to support this would have needed to be in place before the car was purchased.
NB: A car is available for private use when there is nothing preventing the director or the employees from using the car for private use. The fact that it was purchased for the purpose of the business, is not the only requirement. The company needs to ensure that the car is not made available to anyone else.
In summary, to claim the VAT the company will need to demonstrate both:
A pool car is a company vehicle that’s available for use by one or more employees of that company. It’s called a pool car because it is an asset that can be used by everyone in that organisation: ‘pooled use’.
HMRC is very keen to ensure that employees don’t use pool cars and vans as their regular company vehicles in an attempt to sidestep company car tax. Generally speaking, pool cars are rarely seen amongst our clients.
If the vehicle can be classified as pool car a company can recover the VAT incurred as long as it is:
Sole director/employee companies cannot have pool cars as you must have more than one employee available in the pool.
The attached working shows the cost over five years. We’d expect most clients to operate under scenario 1. Some further costs that are not included in our workings that you may want to consider are loan interest (if you are paying in installments), insurance and monthly running costs.
Well, the answer is MAYBE. It depends on whether you actually need the car, what you will use it for, how much cash you have available to you and whether it will help you achieve your long-term objectives. You can download our spreadsheet which shows the various scenarios in which you can buy a Tesla and the costs involved.
One thing I can say for certain is that an excel themed number plate would be essential if you bought the car under our advice ????