Simon Thandi looks at the impact of the recent tax changes when property businesses acquire electric vehicles. In particular the impact for property investors that hold their rental properties in a buy to let limited company.
Many businesses all over the UK are now switching to electric cars and vans. The tax benefits for both businesses and employees are now considerable. Employers are also frequently installing electric charging points at their work premises.
One of the questions I get asked regularly is, “can my buy to let limited company provide me with a company car?”
No one size fits all and whilst, yes, you can, there are circumstances where we would say it’s not a good idea.
To be clear, any expenditure needs to be justified. Do not let the tax tail wag the dog. If you actually need to or are looking to change your vehicle, now might be the time to consider the very generous tax benefits of an all-electric car, whilst they are still available.
For private landlords, motor expenses are still given based on actual costs related to the running of the property business. So, if you’re a landlord with 2 properties and you manage these yourself, HMRC would expect you to pro-rata any motoring costs. Typically, this would not amount to more than say 10% of the actual motoring costs. Alternatively, you can keep a mileage log and claim motor mileage rates instead.
Buy to Let Limited Company
The situation for a property limited company however is different.
If you’re a landlord with several properties in your limited company, then you’re on fairly safe ground. The company can purchase the car and treat the expense as normal business expenditure. You as the employee receiving the benefit can now do so with some very generous tax allowances. A benefit in kind tax charge of just 1% and no private fuel charge either.
For companies with one or two properties, the position is a bit more challenging. Whilst technically, HMRC guidance does not disallow an investment company to provide company cars, there is still sufficient ambiguity in the guidance that might allow them to challenge a company car for a small property company.
My view is that we look at the Ramsey Case as a benchmark for establishing solid ground. In this case, Elizabeth Ramsey owned 4 properties which she managed and spent around 20-25 hours per week doing so. With at least 4 properties it could be argued that the property business is not just a hobby or that you are an accidental landlord, but instead a serious investor and therefore a business.
So what are the benefits?
An electric vehicle now has a taxable benefit for the employee of just 1% in 2021/22 rising to 2% in 2020/23.
Attractive government grants are now available on the purchase of electric vehicles.
For instance, the 2019/20 benefit-in-kind charge for a £70,000 Jaguar I-pace (all-electric car with a 298-mile range) was £11,200; for 2020/21, this was reduced to nil. It has increased slightly to 1% for 2021/22.
Taxable benefit for employees with fully electric company cars:
|Tax year||Taxable benefit|
The Chancellor also recently confirmed that employees with fully electric company cars will be taxed on the 2022/23 benefit in kind rates of 2% for 2023/24 and 2024/25.
Example: Taxable benefit calculation
Jonathan is a director of a restaurant company. It recently provided David with a fully electric company car. It bought the Renault Zoe. Its list price was £27,000.
The company got 100% capital allowances on the purchase of the car, and for the current fiscal year (2021/22) David will be taxed on 1% of its list price (i.e., £27,000 @ 1% = £270).
For 2022/23 and the next two fiscal years, Jonathan will be taxed on £27,000 @ 2% = £540.
If an employee has a company car provided by their employer under a salary sacrifice arrangement,the taxable benefit is normally the higher of the amount of the salary given up or the taxable car benefit.
However, the salary sacrifice anti-avoidance legislation does not apply if the company car has CO2 emissions of less than 75g/km.
It is, therefore, possible for an employer to provide fully electric company cars, pursuant to a salary sacrifice arrangement, and for the employee to retain the tax benefits.
A company should also consider installing electric charging points at their business premises. The employees could be allowed to drive their own cars to work each day and charge them up, free of charge.
If the company installs new charging points for electric vehicles at their workplace, the employer can claim the new 130% super deduction first-year allowances (SDFYAs) for these costs, provided they meet all the necessary conditions.
If the employer allows its employees to charge up their own electric cars at the workplace, there is no taxable benefit-in-kind.
Charging electric cars: the benefit-in-kind position
As a buy to let limited company, you should review the tax benefits and perks in acquiring fully electric vehicles. In most cases, it will pay to do so. This government is very keen to encourage businesses to buy fully electric cars and vans. There are considerable tax benefits available.
This is just one of the ways we can help you pay less tax. For a full review please get in touch and schedule a free consultation.
f you have a pressing question and need an answer quickly contact us on 01902 711370 or send your query to us through the contact page.