Leasing an Electric Car Through a Limited Company
As a business owner, leasing an electric vehicle through your limited company can be a very tax efficient way of getting that new car.
Lease payments can generally be fully offset against your Corporation Tax bill and, if your company is VAT registered, half the VAT reclaimed too. Leasing works out more favourably than buying a vehicle outright through your Limited Company as, when buying, none of VAT can be reclaimed.
The biggest tax burden has, historically, been Benefit in Kind (BIK) tax, an income tax charge based on the value of the benefit you receive from your company.
This is calculated by multiplying the list price of the vehicle by a percentage BIK based on the CO2 emissions of that vehicle. The more environmentally friendly the vehicle, the lower the percentage.
Depending on whether you’re a basic, higher or additional rate taxpayer, you would then have an income tax charge of 20%, 40% or 45% of the value of that benefit. You would also pay Employers’ Class 1A National Insurance (NICs) on the value of the benefit too.
However, from April 2020, the Government have announced in the Draft Finance Bill that the BIK charge on fully-electric cars will be reduced significantly.
- 0% BIK on all fully-electric vehicles in the tax year 2020-2021.
- Increases to just 1% in 2021-2022 and 2% in 2022-2023.
- BIK rates as low a 0% for least polluting hybrid cars with a zero-emission range of at least 130 miles.
With the BIK percentage currently at 16% for the 2019/2020 tax year for vehicles with 0 g/km CO2 emissions, that represents a huge saving for limited company directors.
More details on the new rates and how it works can be found here.