Anyone who started a business as self-employed or as ltd company comes across a time in their business journey when they are eager to find out which vehicle they can purchase, and which will prove to be the most tax-efficient for them. The most tax-efficient vehicle you can purchase in 2021 will be an electric vehicle. The government has been relatively active in providing various incentives to business owners in purchasing an electric vehicle.
Benefit #1 Claim 100% of electric vehicle purchase value against taxable profits
You might be self-employed or operating under a limited company and wondering whether you could claim any tax relief if you bought a vehicle.
As a rule of thumb, you are only allowed an 18% or 8% capital allowance on purchasing a car, based on its fuel emission. (Vans can get 100% of the costs netted off against taxable profits via first-year allowance)
However, with the onset of electric vehicles, this wouldn’t have been a perfect time for yourself, as the gov has announced 100% of the electric vehicle (Cars or Vans) cost to be netted off your year-end profits. There is no restriction to the vehicle’s value, so you can go all out and claim it all back through your first-year allowance.
Benefit #2 Benefit charge has been reduced to 1%. (Applicable to a Company Director).
If you operate through a ltd company, then this used to be an important consideration. As a director is an employee of the company, and uses the vehicle for personal use, then this is considered a benefit in kind. Therefore, tax & NIC will become liable to pay by the director.
There is a further cost to the company, where a company is liable to pay Class 1A national insurance at 13.8% of the value of the benefit.
However, you would be please to know if you have opted in to purchase an electric vehicle, then this charge has now dropped down to a mere 1%.
Benefit #3 Claim 100% expense incurred on electric charge points (First Year Allowance)
You may be tempted to have your own charging point at your workplace once you have gone ahead with the decision to purchase an electric vehicle. This would not only make it convenient for yourself to charge your car but also for your staff.
If you have decided to do so, then from 23 November 2016 to 31 March 2023, you can claim a 100% first-year allowance for the total costs of installation charging points. Any charging points installed outside of these dates will qualify for an annual investment allowance.
Benefit #4 Government grant of £2,500 towards the cost of the car, costing less than £35,000.
Other than capital allowances, you also get a generous grant of £2,500 towards purchasing your electric vehicle.
If you prefer to buy vans, you can get £3,000 for a small van and for a larger van you can get up to £6,000. You can find out exactly which make and model of the vehicles are eligible for the grant here.
Benefit #5 The annual road tax for electric vehicles is £0
Depending upon the fuel emission of your vehicle, road taxes can range from £10 to £2235.
As the road tax is based on the amount of fuel emission a vehicle generates, electric vehicles will be liable to pay £0, as the emissions are non-existent.
Benefit #6 Claim back VAT if the electric vehicle is used solely for business use
You will be disappointed to know that regarding VAT, there have been no changes. However, if the vehicle does not have any personal use, the total VAT can be claimed back. This is applicable to electric and non-electric vehicles.
If the car is leased, 50% of the VAT on the hire charges can be claimed back, and 100% on the rest of the costs such as maintenance, roadside assistance, etc.
Benefit #7 No congestion charge for those traveling into London zone 1
ULE (Ultra Low Emission) scheme was introduced in July 2013. All vehicles that have fuel emissions less than 75g CO2/km qualify. This means there is nothing to pay towards London’s congestion charge.
Overall investing in an electric vehicle will make a quite a difference to your business. As not only would you be able to reduce your tax, but also save the environment from toxic fumes.
What do you think, would an electric vehicle be next for your business? Leave your comments below.