Electric company cars - some traps to look out for!

Electric company cars have become extremely tax-efficient, and therefore extremely popular. But if you’re thinking of getting one, then there are some traps that you need to be careful to avoid:

• It’s only fully electric cars with zero emissions that are going to give you the really generous tax-efficiency. A hybrid won’t.
• The car has to be provided by the company, either via the company owning it or leasing it. It’s no good for it to be a personal lease or purchase with the company paying.
• There’s no superdeduction available on the allowance, unlike most plant and machinery bought by companies.
• The car has to be new! A second-hand car, even if fully electric, doesn’t attract full tax relief in year one. However, that could be a bit of a red herring, because…
• If you’re buying that new electric car outright, you shouldn’t be drawn in too much by the “100% tax relief in the year of purchase” aspect in any case. In the future year when you sell it or trade it in, you’ll effectively have to pay some of the tax back on whatever you sell it for (maybe at a higher rate, if you buy now when the corporation tax rate is 19% and sell in a couple of years’ time when it’s 25%!). Any asset is only going to save tax in the long run on the effective cost over its life with your company - what it buys it for minus what it sells it for. Which year or years the tax is saved may vary, but it’s just timing, you wind up saving tax on the same real cost in the end, and that's what you should focus on. That 100% relief in year one really just represents a little cashflow benefit, nothing else.

We know at some point we’re going to come across someone who - say - has taken out a Personal Contract Purchase plan in their own name, and set the direct debit up from their company bank account, thinking it’s a company car when it’s not. And we’re going to come across someone who is pleased for their company to save £15,200 when buying an £80,000 car, but is discombobulated when they trade it in for £50,000 and have to pay back £12,500 of the tax that was saved. Don’t let that be you!

www.fizzhq.com

Comments

[Bob W A]

My goodness! Although of no personal tax interest to me, I read the piece on electric cars. So clear and so sensible. What a privilege to have access to Fizz informed common sense. Thank you.