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How buying a Tesla can save you tax!

In case you’ve been living in a cave (or still driving a Rover!) –Tesla has dominated the news in the last few years 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. They are years ahead of the competition. 

However, there is one snag, it is 100% electric. This should be a positive though. If you have a charger installed at home, it should be even more convenient as putting fuel in a normal car. Especially with the superchargers built throughout the country, which charges a Tesla 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. But also, the 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 100% reduce profits from the lease payments.

From a business point of view, I would prefer to buy the car outright rather than lease as the EBITDA stays higher this way. Making it look like your business is healthier. Also buying the car outright lets you take advantage of the tax savings in year one rather than over a few years. Also adding an asset to your business looks healthier than a dead expense.

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 had to pull the money out of the business. Assuming this was by dividend, this is another huge tax saving. In this scenario, rather than saying you paid for the £80k in full, 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 in 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. 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, it may not be enough. The cases I’ve read which have won and allowed to claim back the VAT have been cases where terms of use is written in the employment contract, and 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 additional tax you pay in 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 is swings and round 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.

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 01615092152 or  adam@meetenso.co.uk for more details.

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