How We Helped a Consultant Save £6,000 by Buying an Electric Car Through His Business
The client
Andy came to Taxflow Partners as the owner of a successful consultancy business. He was the sole director and shareholder of the company and, during his initial Tax Health Check, mentioned that he was looking to purchase a new car.
Andy had originally been considering purchasing the vehicle personally.
The problem
Buying the car personally would have required Andy to first extract the funds from his company, resulting in the amount withdrawn being subject to dividend tax at the higher rate.
We therefore reviewed whether purchasing the car personally was the most tax-efficient option.
What we recommended
We recommended that Andy consider purchasing a qualifying brand-new electric car directly through his company rather than extracting funds and purchasing the vehicle personally.
This meant the company could benefit from 100% first-year capital allowances on the cost of the qualifying vehicle, generating an immediate Corporation Tax saving.
It also meant Andy didn't need to extract the funds from the company personally to purchase a vehicle in his own name, avoiding the additional personal tax that could otherwise have arisen on extracting those funds.
Although Andy would have a Benefit in Kind tax charge for the private use of the company car, electric vehicles currently benefit from relatively low Benefit in Kind rates compared with many petrol and diesel vehicles.
The result
Purchasing the electric vehicle through the company generated an estimated overall tax saving of £6,000.
That figure takes into account the Corporation Tax relief, the Benefit in Kind charge and the personal tax Andy avoided by not having to extract the purchase price from the company.
By looking at the purchase before Andy committed to buying the car personally, we were able to identify a significantly more tax-efficient way of funding the vehicle.
The bigger lesson
How a business owner pays for a new vehicle can have a significant impact on the overall tax cost.
For company directors considering a new car, it is worth comparing the cost of buying personally with purchasing or leasing the vehicle through the business before making the decision.
The Corporation Tax relief, personal tax on extracting funds and Benefit in Kind position all need to be considered together.
Could your next car be purchased more tax efficiently?
Our Tax Health Check looks beyond your year-end accounts to identify opportunities across your business and personal tax position.
If you're a company director considering purchasing a new vehicle, it may be worth reviewing the options before committing to the purchase.