Electric Cars: Reduce Your Tax & Your Carbon Footprint

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1 : Reduce Your Tax & Your Carbon Footprint Electric cars don t just help the environment; they can also prove a huge money-saving option. UK Plug-in Car Grant In January 2011, the government introduced a grant to encourage motorists to purchase ultra-low emission cars by offering a grant of 25% towards the cost of the vehicle, up to a maximum of 5,000. Qualifying cars can include, but are not limited to: Electric cars Plug-in hybrid cars Hydrogen-fuelled cars Eligibility criteria The qualifying conditions need to have been approved as a completed vehicle, comprising both chassis and bodywork. New cars only, including pre-registration conversions. Motorbikes and quadricycles are not covered. Vehicles must have CO 2 emissions of less than 75 g/km driven. Electric vehicles (EVs) must have a range of at least 70 miles between charges. Plug-in hybrid electric vehicles (PHEVs) must have a minimum electric range of 10 miles. Vehicles must be capable of at least 60 mph Vehicles must have warranty cover of at least: 3-years or 60,000-miles vehicle warranty 3-year battery and electric drive train (the parts that send power from the engine to the wheel) warranty, with the option of extending the battery warranty for an extra 2 years Vehicles must comply with safety regulations (UN-ECE Reg ) to ensure they are electrically safe.

2 Pass crash safety criteria Please ask us for further information on the cars that qualify. Who benefits? Private consumers and businesses with a UK address who purchase a qualifying low-emission car and register it for the first time in the UK. General tax benefits Exempt from the congestion charge in London - once a 10 registration fee has been paid. No road tax, providing the electricity comes from an external source or an electric storage battery not connected to any source of power when the vehicle is moving i.e. petrol/electric hybrid vehicle. No showroom or luxury vehicle tax Corporation Tax Relief Businesses of all sizes can claim 100% First Year Allowance (FYA) on capital expenditure on a car, provided that: The car is unused and not second hand, and is registered on or after 17 April This excludes cars that have been driven for the purposes of testing, delivery, test driven by a potential purchaser or used as a demonstration car. It is an electric car, or A car with CO 2 emissions of not more than 95 g/km driven. The expenditure is incurred between 17 April 2002 and 31 March Benefit in Kind Cars producing zero emissions of CO 2, such as electric cars, have an appropriate percentage of 0% (from 2010/11 to 2014/15). This effectively means that there is no car benefit charge or fuel benefit charge on company cars for an employee. However, from 2015/16 onwards this is expected to increase to 9%.

3 Comparison Of Company Cars For Tax Purposes 1. Tesla Electric Car vs. Aston Martin Scenario: ABC Ltd wishes to purchase a new company car for the director. The company will also pay for the private fuel that the director uses. ABC Ltd is comparing the tax consequences (for the tax year /2014) of purchasing an Aston Martin and a Tesla S Electric Car. Both cars list price is 85,000 to buy. However, because the Tesla qualifies for the UK Plug-in grant (due to zero CO 2 emissions), the actual cost for ABC Ltd to purchase the Tesla S is 80,000. The Aston Martin does not qualify for this grant (CO 2 emissions of 321 g/km). There is 100% Capital Allowance for the Tesla S that can be deducted against the ABC Ltd taxable profits, due to no CO 2 emissions on the electric vehicle. The Aston Martin is only allowed 8% ( 6,800) Capital Allowance because of its high emissions. ABC Ltd has taxable profits of 100,000. The director earns 150,000/year (45% tax bracket) and does not make any contributions towards the cost of the car, and ABC Ltd pays for private fuel. The following will show the differences in tax benefits for the two cars for ABC Ltd and the director.

4 Tax consequences for ABC Ltd: Tesla S Electric Car Aston Martin Taxable profits liable to corporation tax Cost of car for ABC Ltd to purchase Cost of car that is allowable for tax Profit amount assessable to Corporation tax 100, ,000 80,000 85,000 80,000 6,800 20,000 93,200 Corporation tax at 20% 4,000 18,640 Corporation tax saving 14,640 - Net position after expenditure & tax 16,000 ( 3,640) This shows that ABC Ltd can t afford the Aston Martin and would end up with 3,640 of debt if they bought it. However, if they purchase the Tesla S Electric Car they make a corporation tax saving of 14,640 and still retain 16,000 profit. N.B. It is important to note that Class 1A National Insurance Contributions (NICs) on cars and fuel benefits also need to be paid. Zero emission cars, such as the Tesla S, are exempt from this. For the Aston Martin, employers Class 1A NIC will have to be paid at 13.8% on 35% (percentage dependent on CO 2 emissions) of the list price of the car, equalling 4,

5 Tax consequences for the director: Tesla S Electric Car Aston Martin Cost of car to purchase 80,000 85,000 Car benefit charge ,750 Car fuel benefit charge ,385 Tax liability at 45%: Company car tax , Company car fuel tax , Total tax liability ,711 By purchasing the Tesla S Electric car over the Aston Martin, the director has made a personal tax saving of 16, BMW i3 vs. BMW 320d Scenario: The scenario is the same as for the previous comparison. However this time the list price of both cars is 30,000, with the BMW i3 being a zero emissions vehicle, whereas the BMW 320d (diesel) has CO 2 emissions of 119 g/km. The BMW i3 qualifies for 100% Capital Allowance, whereas the BMW 320d is written down at 18% due to emitting less than 130 g/km of CO 2 when driven. The UK Plug-in Grant is also available for the BMW i3. Furthermore, due to the BMW 320d having a diesel engine, it is subject to an additional 3% supplement when calculating the car benefit charge.

6 Tax consequences for ABC Ltd: BMW i3 BMW 320d Taxable profits liable to corporation tax Cost of car for ABC Ltd to purchase Cost of car that is allowable for tax Profit amount assessable to Corporation tax 100, ,000 25,000 30,000 25,000 5,400 75,000 94,600 Corporation tax at 20% 15,000 18,920 Corporation tax saving 3,920 - By purchasing the BMW i3 over the BMW 320d, ABC Ltd has made a corporation tax saving of 3,920. Once again, Class 1A NICs will be liable on the BMW 320d at 14% of the list price.

7 Tax consequences for the director: BMW i3 BMW 320d Cost of car to purchase 25,000 30,000 Car benefit charge ,400 Car fuel benefit charge ,798 Tax liability at 45%: Company car tax , Company car fuel tax , Total tax liability , By purchasing the BMW i3 over the BMW 320d, the director has made a personal tax saving of 3, As can be demonstrated by the scenarios presented here, there are some serious savings to be made by purchasing an electric car. If you would like further information, please get in touch with our expert, Robert Marsden. Contact: Robert Marsden Tel: Robert.Marsden@myersclark.co.uk Myers Clark