Should You Buy an Electric Car Through Your Limited Company? The Pros and Cons Explained

The Pros

1. Big Tax Breaks on Purchase

   1. From 1 April 2023 to 31 March 2026, there is a 100% first-year relief for plant and machinery up to £1 million. This is beneficial as it includes electric cars.

   2. The Annual Investment Allowance (AIA) was also raised to £1 million from 1 April 2023. The AIA is a form of tax relief which deducts your total expenditure on qualifying plant and machinery fixed assets from your profits before they are taxed.

      
      

2. Low Benefit in Kind (BIK) Rates

   The BIK rates are at a very low rate of 3% for the 2025/26 tax year and rise in 1% increments until 27/28.

3. Can recover VAT (if no private use)

   1. There is the potential for VAT to be reclaimed on the acquisition of the car so long as it’s used exclusively for business purposes.

   2. VAT can also be recovered on accessories purchased after acquisition and on repairs and maintenance so long as this is for business purposes

4. Relief from Corporation Tax

   Capital allowances will lead to deductions so this reduces the company’s taxable profits and therefore saves corporation tax.

5. No Fuel Benefit for Electric Cars

   Payments for electricity when charging your car at the workplace don't create a fuel benefit. HMRC sets a specific advisory rate of 7p per mile for reimbursing electricity costs tax-free.

The Cons

1. Portion Capital Allowance Claims

   If the car is used for some private purposes, you must portion the capital allowance claims between business and private use. This limits the allowable expense to the business portion.

2. Detailed Record-Keeping

   Record-keeping is key when keeping an electric company car. There must be accurate records of business and private mileage so there are no unnecessary fuel benefits or incorrect BIK charges.

3. Private Use Restrictions

   VAT recovery is restricted to cars used only for business, and if there is any private use no VAT can be recovered.

4. Balancing Charge

   However, if the company decides to sell the car, any excess over the written-down value could be taxed as a balancing charge.

Conclusion

As you can see, there are many tax benefits to purchasing an electric car. However, you must be able to separate business and private use and maintain accurate

record-keeping throughout.