A push towards sustainability in recent years has led to a rise in popularity for electric vehicles (EV). But did you know that embracing electric cars for your UK business not only helps the environment but also offers significant financial advantages? We dive into the perks and tax benefits of purchasing an electric vehicle through your limited company as well as tips for how to spread the cost.
Corporation tax relief on electric cars and capital allowances
One of the biggest advantages to consider purchasing an electric car for your business is the tax relief available. Here are some of the incentives currently available
Corporation tax relief
If you purchase an electric vehicle using asset finance, you could enjoy some corporation tax relief. If you purchase the vehicle through hire purchase, you will retain ownership at the end of the agreement. This means that not only will you be able to claim up to 100% tax relief through capital allowances, you will also be able to claim on the interest you pay in your monthly repayments. This will mean that your business’ profits will be reduced, making you savings in corporation tax.
If you lease an electric vehicle used by your business, you won’t retain ownership of the vehicle, but you will still be able to claim the monthly rental payments, meaning you could also make savings on your corporation tax.
Historically, you couldn’t claim capital allowances on a leased vehicle. However in the UK’s Spring Budget 2024, Jeremy Hunt announced that full expensing would be extended to vehicle leasing as well. The legislation for this is yet to be published, but it is worth bearing in mind if you’re considering leasing an electric vehicle. You should speak with your accountant when considering finance to be clear on the current legislation and tax relief that applies.
Capital allowances
Currently, businesses can claim 100% tax relief in the first year if the electric car is bought outright or via hire purchase, making this highly advantageous.
If you buy an electric car after April 2021, the following applies:
- New and unused, CO2 emissions are 0g/km (or car is electric) = 100% first year allowances. This means you can deduct the entire cost of the vehicle from your taxable profits in the year of purchase.
- Second hand electric car = Main rate allowances apply, enabling you to claim 18% of the car’s value.
- New or second hand, CO2 emissions are 50g/km or less = Main rate allowances apply, enabling you to claim 18% of the car’s value.
- New or second hand, CO2 emissions are over 50g/km = Special rate allowances apply, enabling you to claim 6% of the car’s value against your taxable profits.
Electric car grants
The UK government offers several grants and incentives to encourage the adoption of electric vehicles:
Low emission vehicles plug-in grant
Some low emission vehicles qualify for a government grant which can lower the cost of the vehicle. This isn’t a grant that you apply for, instead the seller should apply the discount from the government as part of the purchase price.
The following types of vehicle are eligible for the plug-in grant:
- Wheelchair accessible vehicles
- Motorcycles and mopeds
- Small and large vans
- Small and large trucks
- Taxis
Workplace Charging Scheme
The Workplace Charging Scheme provides businesses with financial support for purchasing and installing electric vehicle charging infrastructure in the workplace. The grant can provide up to 75% of the initial purchase cost and the installation of the charging point, although certain requirements and caps do apply.
EV running costs
Beyond tax incentives and grants, electric cars offer lower running costs compared to traditional vehicles, due to reduced fuel and maintenance expenses. If your business operates within a city, you will also enjoy exemptions from congestion charges. The congestion charge in London is currently £15 per day, making an electric vehicle significantly cheaper to operate.
How much does it cost to charge an electric car?
Charging an electric car can be significantly cheaper compared to the cost of diesel or petrol. The exact cost will depend on a variety of factors, such as whether you’re charging at home, how long you’re charging for and the size of the vehicle. Typically, charging an electric car will cost between 7p - 10p per mile.
How to purchase an electric car
If you’re looking to purchase an electric vehicle, it might not be possible for your business to purchase one outright. You might not have the full cost on hand to spare, or you may want to look for a solution that is easier on your cash flow. Plus with the cost of semiconductors in cars, supply and shipping issues have driven up prices in recent years. This means that car finance is becoming an increasingly popular choice for many businesses.
There are multiple options available for vehicle finance, which is best suited for your business will depend on a variety of factors, such as how much of a deposit you have and whether you want to retain ownership of the vehicle after the finance agreement has ended. At Capitalise we have a team of funding specialists who can help you to understand which could work best for your business. Working with a panel of 100+ UK lenders, we can help you to find a lender best suited to your needs. Just search for funding to get started, or use the asset finance calculator to see how much you could borrow.
