New And Unused Electric Cars

Looking to buy an electric car and thinking of buying it through your business? We've put together some points you need to know.

Electric Cars and Capital Allowances

New and unused electric care qualify for first-year allowances.  This means the business can deduct the full cost of an electric car from your profits before tax during the tax year you purchase the car.  There is also the ability to deduct the cost of the installation of electric car charging points from your profits before tax in proportion with any personal use.

If there is any personal use of the car, this would need to be deducted from the total cost claimed.  For example, if you use the car for personal journeys 25% of the time, you can only claim 75% of the cost of the car in Capital Allowances.

You could only claim 6% or 18% of the cost of a non-electric car in the first year, depending on its CO₂ emissions. That’s quite different from the percentage you can claim for a new/unused electric car!

The capital allowances can be claimed when you buy the car outright or with a hire-purchase agreement.

Remember that when you sell the car in the future, the sale price will need to go through your accounts.

Purchase, hire purchase, PCP or lease?

Purchase – if you buy the car outright you can claim capital allowances on the vehicle’s purchase price, less any personal use.

Hire Purchase (HP) – you can claim capital allowances on the purchase price of the vehicle and if interest is charged this can be put down as a deductible expense within the business.

PCP – usually involves an initial deposit and then monthly payments.  At the end of the contract term there will be several options; trade the vehicle in for a new one, hand the car back and walk away or pay the balloon payment so you own the vehicle outright.  The monthly payments are a deductible expense for your business.

Finance Lease – monthly lease payments are a deductible expense for your business.

Electric Cars and VAT

You can only claim the VAT back from the outright purchase of an electric car if the vehicle is exclusively used for business.

If you lease the vehicle, you can claim back 100% of the VAT if there is no personal use.  If you do have an element of personal use, then you can only claim back 50% of the VAT.

You can also claim the VAT back from the costs incurred installing a charging point.

Personal use of cars

Remember that a business car needs to be for business use.  Any personal use is a benefit in kind (BIK) and has to be taxed. Every car has a BIK percentage banding which is based on the list price of the car including extras, and so the tax varies depending on the car.

Useful note

Suppose you are in a position to buy an electric car personally and claim mileage for business use from your business. In that case, the mileage rates for petrol, diesel, and electric cars are currently all the same at 45p per mile under 10,000 miles. If you do a lot of miles for your business, this can also be a cost-effective way of claiming the expense.