As a rule of thumb, if you own a limited company then the advice has usually been that it’s a bad idea to have one.
Company cars are taxed on the list price when they were new, at a specific rate, which is based on the CO2 emissions they generate.
This means they can be quite expensive, especially as no matter how many years own them, they will always be taxed as a brand-new car.
The tax goes up every year, even though the car is likely to be going down in value, and the rates tend to be punitive.
For company owners, this usually makes it a very expensive way to own or lease a vehicle.
However, it’s not all bad news and there’s a great opportunity around electric car ownership.
What are the benefits of having an electric company car?
HMRC made a change last year to how the rates for electric cars are calculated, and from 6 April 2020 to 5 April 2021 there’s a 0% benefit in kind.
This means that a company could lease an electric car, such as a Tesla, and the company can make all the payments.
The owner can drive the car home, use it privately – anything you like – and there’s a zero benefit on it, which means the company can pay for everything.
This is huge because a car of that value would normally be treated as many thousands of pounds of extra income could now be treated as zero.
The caveat is that from April next year to April the year after, that becomes 1%, and 2% the year after that, but that is still really cheap.
For example, if you had a Range Rover with a list price of £80,000 that was a diesel then it may have a 37% rate on it, and you’d be looking at an average of £29,600 extra income being recorded every year.
If you’re a 40% tax-payer then it’s a very significant amount you have to find.
But if that car was a Tesla or an electric Jaguar, for example, it would be £0 this year, and potentially £800 next year, so it’s a huge saving for the company.
It’s become apparent to us that many business owners aren’t aware of this as much as they ought to be; the advice in the past has always been to pay for the car personally and claim back mileage.
That worked out cheaper, but if somebody hasn’t asked the right questions of their accountant then they might not be getting that right.
Company car advice
One thing that Relative has always done for all of its clients is to provide the latest advice whenever they are thinking about buying a vehicle for their business.
We encourage our clients to speak to us about it, because the rules change, and what was once good advice might not be any more.
The conversation would also revolve around the format, what you want from the vehicle, and what the tax consequences would be for each of the routes available.
We don’t charge separately for that kind of advice; it’s all part of the service.