With environmental issues continuing to be headline news, a frequent question from our clients is "how should we buy a company car".

Any Ultra Low Emission Vehicle (ULEV) car will qualify for a 100% first year allowance (providing it is a “brand new” car, i.e. not pre-owned and is purchased and not leased) so the entire cost of the vehicle can be offset against company profits in year 1.  If you are spending £80,000 on a car then your company will save 19% of this in corporation tax, so £15,200. This tax relief is a first-year allowance relief and will not diminish the company’s Annual Investment Allowance for the period.

If your company is providing you with a company car, you will be liable for tax on the company car benefit.  The rates for cars with emissions of zero CO2/km are 2% in the current 2022/23 tax year and are fixed at that level until the end of the 2024/25 tax year.

The benefit in kind (BIK) charges on these ULEV cars (with emissions of zero CO2/km) are as follows:

2022/23 – 2% of list price

2023/24 – 2% of list price

2024/25 – 2% of list price

Assuming you were to spend £80,000 on one or two electric cars, you would save corporation tax of £15,200 in year 1.  Benefit in kind charges would be £1,600 in each of the years 2022/23 to 2024/25, which means tax for a higher rate taxpayer of around £640 (i.e. 40% of the benefit).

If you are looking at electric-only vehicles, there is no fuel benefit to worry about.

Class 1A NIC is also payable by the company at a rate of 13.8% on the benefit in kind.

As the car would be owned by the company, any repair costs, servicing, insurance etc can all be paid for by the company, obtaining 19% corporation tax relief.

One important point not to forget is that when the car is sold/traded in, because you have had tax relief in full at the outset, any sale proceeds are taxed in full in the company.  Therefore an £80,000 car on which you have had £15,200 tax relief  when purchased will have, for example, £7,600 of this tax relief clawed back on sale if the car is sold for £40,000.

For help and advice contact your usual Dodd & Co tax consultant or email hello@doddaccountants.co.uk