This article is about the best way to purchase a company vehicle for your limited company. It also includes some additional information regarding the benefits in kind you will have on the car and on reclaiming VAT on the cost of the car.
The best way to purchase an electric car would be either via a PCP/HP lease or via an outright purchase. You would then be able to claim the first year allowance relief on the gross cost of the vehicle.
The other way to purchase an electric vehicle would be via an operating lease. Through this method you would be able to reclaim 50% of VAT on the repayments however there would be no relief on the full cost of the asset itself.
The way to record this in Ember would be to create a purchase invoice for the gross cost of the vehicle. If this is purchased on a lease, when you make the payments you would need to split these between the purchase invoice and interest if any interest has been charged.
If a car is bought second hand then it will likely have high Co2 emissions. If this is the case then you should look to buy the car personally and claim the mileage allowance for company mileage, rather than put this through the company as this would be more tax efficient. The mileage allowance claim is 45p per mile up to 10,000 miles and 25p per mile thereafter.
Benefit In Kind
There will be a benefit in kind on the company car which will be added onto your total income for the year on your self-assessment and taxed accordingly within the tax bands (at 20/40/45% depending on whether you are a basic/higher/additional rate tax payer). There will also be Employers National Insurance at 13.8% on the BIK.
Electric Car Example:
The BIK rate for the 23/24 tax year on electric vehicles is 2%. If you bought an electric car new with a list price of £50,000, the BIK would be £1,000 (£50,000 * 2%) for the year. There would then be Employers NI to pay on this of £138 (£1,000 * 13.8%).
The BIK rate will change for all vehicles depending on their Co2 emissions so please get in touch if you would like some help with the calculations.
There is scope to reclaim some of the VAT incurred on the purchase of the car depending on your company’s VAT status.
If you lease a car for business purposes you will be able to recove 50% of the VAT charged, the remaining 50% is there to cover the private use of the car.
To record this in Ember you will need to split the transaction into two and have standard VAT on one half and zero VAT on the other.
You cannot recover any VAT charged on the outright purchase of a company car except in the following circumstances where you can recover the VAT in full:
These are cars which are:
intended to be used primarily as a taxi, driving instruction car, or self-drive hire
stock in trade of a motor manufacturer or dealer
used exclusively for the purposes of your business and would not be made available for the private use of anyone
Making the Purchase
If you decide to purchase a company car you need to ensure that this purchase is made in the company's name and the company is the registered keeper.
As this will be a company vehicle you can then claim any associated costs with the car such as fuel, insurance and maintenance.
Please ensure you send the contract for the vehicle across to us so we are aware of the method being used to purchase the vehicle and any further associated costs.