This month sees the release of the new #21 registration plate. New plates often signal a time to upgrade or change your car.
Until very recently, if you’d asked your accountant whether you should buy a car through your business, the answer would almost always have been no. The Benefit in Kind Tax you would pay to run that car would far outweigh any tax relief you got on the vehicle.
However, that all changed last year and now, if you buy or lease an electric car, then the benefit in kind tax is 0% up until the end of this financial year. As anyone with even rudimentary maths can tell you, zero percent of anything is still zero!
After that the Benefit in Kind Tax will then will rise to only 1%, then 2% until 2024
To demonstrate the impact of this 0%, in true Top Gear style I took a spin in a Jaguar i-pace, Jaguar’s first all-electric model and winner of an unprecedented treble of World Car of the Year Awards.
It’s an impressive machine, but what’s even more impressive are the tax savings you can now benefit from. You get 100% of the cost of the car off-set against the profits on which you pay Corporation Tax. For the i-pace, on the forecourt at around £65,000 that equates to around £12,500.
If you are currently taking money out of your business as either a salary or dividends and then funding a car, then HMRC are charging you tax on those funds, before you make any car payments. But, now, if the company buys the car you save Corporation Tax relief, plus the running costs and you get to keep more of the money you do take out, or you take less out in the first place, so pay less personal tax on it. Either way it’s a win, win.
Example of monthly costs of the i-Pace (left) compared to a Jaguar f-Pace (right); a £40,000 diesel model of a lower spec
If you are in the 40% personal tax bracket, it could be as much as £504 a month!
Or you could decide to lease the car, and make monthly payments. This way you still get the tax relief on the lease payments and get to recover some VAT, (which you don’t do with the outright purchase) and the Benefit in Kind Tax stays exactly the same. Using this route, the tax savings are significantly reduced, but you are laying out a lot less cash up front.
Over a three-year lease the tax relief looks something like this:
I have used the i-Pace as an example, but other electric cars are available. As long as it is new and electric then you can still benefit from all the tax savings!
If you are a business owner, who drives a car, and wants to save some tax, then you should seriously consider making your next vehicle an electric one and for the first time perhaps, do it through your business.
If you would like help with choosing the right car, there are lots of Sterling members who can advise, but if you are interested in really saving some money, then give the top gear team at Cypher a call and we will be happy to help you out.