Consider going electric
Consider going electric
If you are going to replace a car that you also use for business purposes, then you might want to consider going electric. This is good for the environment but can also be good for your finances.
There is a lot of information available on the benefits to employers providing Electric Vehicles (EVs) to their staff as part of a salary sacrifice arrangement but as this is not available to partners what are the benefits of purchasing a car privately?
Purchasing an EV for your business can be tax efficient, but the extent of tax relief depends upon your business mileage. As for all business assets, the tax relief is restricted for any personal use. For example, care needs to be taken as the commute to surgery is private use, which does not qualify for tax relief.
Where a new vehicle is bought outright or on a Hire Purchase agreement, Capital Allowances can be claimed which qualify as Enhanced Capital allowance and so the tax relief is accelerated as 100% First Year Allowances are permitted for electric cars. Capital allowances do not apply if you acquire a EV using PCP.
Other benefits of EVs also include being exempt from some urban charging zones fees and improving the environmental credentials of your business.
New EV charging points: full expensing is also available for the purchase of new EV charging points for expenditure incurred up to 5 April 2025, again subject to any personal use adjustments required.
When the EV is sold: a balancing adjustment will arise. Where the proceeds exceed the tax written down value in the Capital Allowances pool a balancing charge will arise, this decreases the Capital Allowances for the year and is treated as an additional trading profit.
Claiming the tax relief: the tax relief for Capital Allowances will be given to the individual partner by way of reducing the taxable share of partnership profits.
For example:
EV leased / owned by the individual partner:
There is a lot of information available on the benefits to employers providing Electric Vehicles (EVs) to their staff as part of a salary sacrifice arrangement but as this is not available to partners what are the benefits of purchasing a car privately?
Purchasing an EV for your business can be tax efficient, but the extent of tax relief depends upon your business mileage. As for all business assets, the tax relief is restricted for any personal use. For example, care needs to be taken as the commute to surgery is private use, which does not qualify for tax relief.
Where a new vehicle is bought outright or on a Hire Purchase agreement, Capital Allowances can be claimed which qualify as Enhanced Capital allowance and so the tax relief is accelerated as 100% First Year Allowances are permitted for electric cars. Capital allowances do not apply if you acquire a EV using PCP.
Other benefits of EVs also include being exempt from some urban charging zones fees and improving the environmental credentials of your business.
How the tax relief works for partners
Where an EV is purchased: Capital Allowances can be claimed by the partner where an EV is purchased and used by the partner in the partnership trade.- In both cases the Capital Allowances are restricted for any private use
- 100% First Year Allowances can only be claimed on the purchase of new and unused cars with CO2 emissions of 0g/km, or where the car is electric.
New EV charging points: full expensing is also available for the purchase of new EV charging points for expenditure incurred up to 5 April 2025, again subject to any personal use adjustments required.
When the EV is sold: a balancing adjustment will arise. Where the proceeds exceed the tax written down value in the Capital Allowances pool a balancing charge will arise, this decreases the Capital Allowances for the year and is treated as an additional trading profit.
Claiming the tax relief: the tax relief for Capital Allowances will be given to the individual partner by way of reducing the taxable share of partnership profits.
For example:
EV leased / owned by the individual partner:
- £1,000 lease payment per month for a 36-month lease starting in April 2023
- £50,000 if bought outright
- 20% business use (i.e. your actual business miles are 2,000 out of a total of 10,000 miles).
Tax relief
- Leased: Cost per year = £12,000
- Allowable deduction of £12,000 restricted to 20% = £2,400
- Gives a tax saving for a 40% taxpayer of £960 for the year.
- Purchased: Total cost = £50,000
- First Year Allowances of £50,000 restricted to 20% = £10,000
- Gives a tax saving for a 40% taxpayer of £4,000 in the year of purchase. Note, there will be a balancing adjustment when the car is sold (see above).