Electric Dreams

Electric Cars and Capital Allowances

In the UK a lot of business owners have been looking to ways to efficiently extract cash from the business.

One thing many business owners have gravitated towards is buying an electric car through the company and then using it as a benefit in kind.

So no matter if you are looking for the most expensive electric car or the cheapest electric car for sale … if you want a Kia Electric car, a BMW Electric car, a Tesla Model 3 or a Tesla Model S; the question is the same…

Does it make sense for me to purchase my Electric car through my business?

At the point of writing this, it is a good way to extract cash from the business. This is because the government has put in place tax incentives to encourage people to buy electric cars in their bid to reduce emissions by 80% by 2050.

However, there are a number of caveats to look out for…

Now of the technical bit…To receive the benefit of 100% First Year Allowance you need a new car that is either electrically powered or has a CO2 emission below 50g/km. In addition to this, it must also comply with section 7 of the 2001 capital allowances act and be considered to be owned by the company.

Let’s face it… there are many ways to purchase a car and depending on the method, you choose you may or may not be able to claim capital allowances.

The key measure is the optics of ownership.

Let me say that again! The key measure is the “optics of ownership”! So, even if you do not legally own the vehicle, you can treat as such if the economic substance of the agreement suggests you do.

What I mean by this is … if you have an agreement that includes a lump payment at the end of the deal to acquire the vehicle … THE QUESTION is … is this above or below the expected future market value of when the agreement ends?

If the lump payment at the end of the deal is below the expected future market value then there is a better than even chance you will buy at the end of the agreement so treat as purchase.

If, however, the lump payment at the end of the deal is above the expected future market value then it is unlikely you will buy at the end of the agreement so treat as rental.

So in general, finance leases like HP agreements are treated as purchases whereas operating leases are treated as rental.

PCP agreements are a grey area where you need to look at the lump sum at the end and compare it to the expected future market value.

To make things more confusing, car dealerships will often put HP agreement at the top but then below in smaller text say ‘Personal Contact Purchase’ elsewhere in the agreement so look out for this.

Lets face it; this can be tough to navigate, as often car sales representatives will not know the exact rules and neither will you and you are unlikely to bring your accountant along with you to the showroom!

So find out the detail before you go to see the car dealer.

Remember, if you are buying an electric car through your business and are unsure if the agreement will comply, it is always best to seek advice before signing.

Any questions, I would love to connect!