The world has changed a lot in the past two years. Lockdowns and global pandemics have changed so much of what we knew as ‘normal’. Environmental factors have become more important to many individuals and businesses.
Technology has certainly been accelerated and many experts are saying that the advances made in tech were fast-forwarded by around 10 years!
Video calls are the norm. Remote working is now completely accepted. Cloud-based technology is a necessity and has been implemented en masse.
And of course, digital currency also got a bigger focus as cash was shunned by many high street shops.
2020 changed us, and it changed our norms and one thing that’s been bubbling away in the background is the electric car.
Climate change is a big topic right now and although not often an agreed opinion of fact, the electric car is being encouraged by governments around the world to help us be environmentally friendly.
Sure, you’ll get tax breaks for making the choice too, but is it worth it? And what does it look like in the real world? And would you even want to have an electric car at all?
Let’s deal with some of your questions…
Firstly, are electric cars any good?
In short, yes. They’ve moved on from the days of Top Gear berating them for poor range and some of them (Teslas, the Mustang Mach e, and Jaguar’s I-PACE) are actually a choice OVER their regular petrol and diesel counterparts.
You’ll need to research the options and get your head around it all first.
Power/charging/range are new concepts to many of us, and must be understood before making a decision.
Essentially all electric vehicles are better with a more powerful battery. Bigger batteries give you more power, more range, and they charge more quickly in most cases, too.
But we’re not car experts; we’re tax experts. So, let’s stick to the finances.
What’s the deal and can you get more for less with electric over combustion engines?
More for your money with a business lease electric car
Aside from the maximum £2,500 government grant (which comes off the overall cost of an electric car under £35,000), there are many benefits to leasing an electric car through your business over leasing a traditional car personally.
It comes down to tax breaks and the difference in how you pay yourself, what tax you pay, and how the cost of the lease decreases your overall corporation tax.
Here’s a real-world example to explain the point.
Tom currently leases a petrol car privately for £300 a month.
Tom runs his own business, so (for ease of this explanation) he essentially pays himself a £300 dividend each month to cover the cost of the lease car.
Tom will pay tax on this dividend.
Tom is now looking at the possibility of leasing an electric car through the business.
His plan is to not pay himself that £300 dividend anymore (saving tax), and instead pay the lease company directly, essentially creating a company car.
And this is where it gets interesting.
The electric company car can save you money
When we crunched the numbers, it was clear that the best option for Tom for his next car was electric. That was no surprise to us really.
If Tom keeps the lease car payments for his new electric car at £300 a month and pays it via the company, it’s a saving overall.
Here’s how that stacks up for Tom:
Current Personal Lease:
- £300 per month dividend to lease car personally = personal tax of £270 per year (based on basic rate of tax)
- TOTAL COST £3,870
New Business Lease:
- £300 per month inc. VAT (£250+VAT)
- Corporation tax saving of £627 per year (based on the current Corporation Tax rate)
- VAT rebate of £300 per year
- Dividend tax saving of £270 per year
- TOTAL COST £2,673
TOTAL SAVING £1,197
So, by keeping things the same (same payments, new car) Tom and company combined save £1,197 a year!
What about spending a little more on your electric car payments?
Here’s what happens if Tom chooses a £400 a month and £500 a month lease electric car:
Business Lease:
- £400 per month inc. VAT (£333.33+VAT)
- Corporation tax saving of £836 per year
- VAT rebate of £400 per year
- Dividend tax saving of £270 per year
- TOTAL COST £3,564
TOTAL SAVING £1,506
Business Lease:
- £500 per month inc. VAT (£416.67+VAT)
- Corporation tax saving of £1,045 per year
- VAT rebate of £500 per year
- Dividend tax saving of £270 per year
- TOTAL COST £4,455
TOTAL SAVING £1,815
Please note: We’ve not included the following in the above calculations:
- Mileage: As this will be a business expense Tom will no longer claim mileage.
- Any other vehicle costs will be paid by the business and therefore reduce Tom’s personal expenditure, and increase the corporation tax relief. For example; services, MOT, repairs, insurance, etc will now come out of the company expenses, rather than Tom’s.
Overall, Tom can spend £200 a month more on his car lease – which widens his options to some fabulous cars – and only increases his average monthly cost by around £50 but saves his annual expenses (company and him combined) by over £1,800!
Thanks to grants, tax breaks, a reduction in corporation tax, and the lower company car (Benefit in Kind) tax associated with an electric car, we’d say it’s a very attractive option for Tom… and for many other business owners out there.
Because Tom runs a VAT registered company, he can claim 50% of the VAT back.
If you’re in a similar situation, please speak to us. We’d also take into account more than the above on a case-by-case basis, but this example was purely to illustrate the point.
Overall the evidence is clear – the future is electric!
This is made even more attractive by the fast advance in charging points, technology, apps and more.
Gone are the days when owning an electric car caused range anxiety.
Most electric car charging finder apps like Chargemap not only show you the charging en route, but on longer journeys they even plan stops in (based on your car, using the manufacturer’s range) accounting for charge time and even gives the option to ‘part charge’ if want to get there in the fastest time (useful if you can plug-in when you arrive at your destination!).
Chargemap even links to Google Maps so you can easily push that up to your Apple or Android car play system and the car will take care of it all for you!
Add to that most hotels and destinations now have charging parking spots and you’re really living in the future of automotive.
Of course, the overall lifetime cycle of an electric car is a lot shorter than a combustion engine and the eco-friendly nature of them, particularly disposal, might be slightly questionable. But from an accounting and lease perspective – they’re currently a good option.
If you’d like to chat about the tax-efficiency of leasing or buying a new electric car, get in touch with us today.
