How buying a Tesla can save you tax!
In case you’ve been living in a cave – the last few years Tesla has been dominating the market with their self driving cars and their very ambitious founder, Elon Musk.
My personal take on a Tesla: best car I’ve ever driven. It really is a fantastic drive, and the built-in tech in the car makes the experience so much better. It is years ahead of the competition.
However there is one snag, it is 100% electric. But this should be a positive. If you have a charger installed at home, it could be even more convenient than putting fuel in a normal car at the petrol station. With superchargers throughout the country, your Tesla can be fully charged from empty in 15 minutes.
Being electric has a few other benefits. The price of a Tesla is knocked down a fraction from a government grant. There are also fantastic tax benefits that come with buying an electric vehicle. Below I’m going to show you how buying/ leasing an £80k Model S Tesla will save you tax.
Corporation Tax
I’ll start with the best part. As the car is electric, you will be able to reduce taxable profits by 100% (First Year Allowance) of the value of the car. So an £80k car will save you a whopping £16k.
If you are leasing the car you will be able to reduce profits from the lease payments.
From a business point of view, I would prefer to buy the car outright rather than lease. The EBITDA stays higher this way which makes your business healthier. Also buying the car outright lets you take advantage of the tax savings in year one rather than over a few years.
Remember, this will end on 31 March 2021, so if you do want to buy electric, I would recommend buying before this date!
Personal Tax
If you were thinking of buying a car personally anyway, remember you would have to pull the money out of the business. Assuming this was by dividend, it is another huge tax saving. In this scenario you would not be paying the full 80k but instead on finance and deposit. Assuming the deposit is 10% so £8,000, and then payments of £800 a month. That totals £17,600 year one and £9,600 onwards. Depending on your tax bracket (assuming you’re on a higher rate at 20%), pulling that dividend would cost around £3.5k year one and £1.9k year two onwards.
VAT
This was the part I did the most extensive research, and unfortunately it’s bad news. HMRC states that if the car is available for personal use, then VAT cannot be claimed. So if you are very strict, do not use the car for commuting, or any personal use at all. The cases I’ve read which have won and allowed to claim back the VAT have been cases where it is written in the employment contract that the car was stored and locked on site overnight. That availability of the car, even if your home is your office, will stop you being allowed to claim the VAT back.
It’s not all bad, if you do lease the car you will be able to claim back 50% of the VAT if it is for business use.
Benefit in kind
Assuming the car is for personal use you will need to pay benefit in kind. This is an additional tax you pay on behalf of the employee for benefits from the company. The rate isn’t great at the moment. You would pay tax on 13% of the value of the Tesla for year 2018/2019. It is 16% in 2019/2020. However, it drops all the way down to 2% in 2020/2021. It swings about though as from 31 March 2021 you won’t be able to claim the 100% First Year Allowance of the car.
The BIK in the next three years on a 20% tax rate would be £2,080 year one, £2,560 year two, and £320 year three.
July 2020 Edit: There was a government update after writing this blog, which is in fact beneficial. The drop for 20/21 is 0%, which then increases to 1% 21/22, and 2% 22/23. So right now is the best time to buy!
Also the First Year Allowance has been extend to March 2025. Great News!
How can Enso help?
We are happy to give you a free consultation where we can review your finances and company cars for your business. Contact us on 0161 511 2153 or adam@meetenso.co.uk for more details.
You can use my referral link to get 1,000 free Supercharger miles on a new Tesla: