Financial Strategies
November 20, 2023
5 mins

The Financial Advantage of Leasing Electric Cars Through Your Limited Company

Gravitate Accounting

Electric vehicles (EVs) have surged in popularity, driven not only by environmental consciousness but also by financial incentives. For businesses, especially those operating under a limited company structure, leasing an electric car has emerged as a financially smart move. Let's delve into why.

Consider the scenario of leasing a Tesla Model Y -the comparison between personal and business leases unveils a stark contrast in costs. The personal lease sets you back £582.29 monthly, while the business lease, assuming your business is VAT registered, tallies to £485.24 + VAT per month. Note the gross amount is still the same.

However, the breakdown of business lease costs is intriguing. Despite thegross amounts aligning with personal leases, the VAT treatment differssignificantly. HMRC's assumption of personal usage permits only half of the VAT(10% out of 20%) to be recovered for business leases.

This results in an expense of £533.76 in the business accounts, with£48.52 being recoverable VAT. This VAT recovery significantly reduces the costfor the business. Additionally, the company incurs a benefit in kind* cost forproviding the company car (this is based on 2% x the list price x 13.8%),amounting to £10 per month in this instance.

*Benefit in kind are the benefits thatemployees or directors receive from their company which aren’t included intheir salary or wages.

So looking from a monthly perspective youhave the tax deductible expense (£534 above) plus 1/12th of the company benefitin kind cost around £10.

You then have the benefit as a company owner tooffset the corporation tax against this to get a true cost.

So even at the lower rate of 19% (the higherthe tax the more you save) the cost to the company of the monthly lease, plusaccrued benefit in kind cost, less corporation tax is around £44.

You then have the benefit in kind taxed on theindividual (based on the assumption of a higher rate tax payer). To keep thissimple we have assumed at 40% -there’s ways this could be reduced and couldargue that income pushed into higher rate would be taxed as a dividend but it’sinsignificant to the outcome.

This would be an additional £30 per month taxedon the individual (no corporation tax savings as personal) but you would needto extract this from the company to cover the cost, to take a dividend of £30the gross dividend would need to be around £45 (less tax at 33.75%).

Total cost per month around £486.

Now, contrast this with extracting funds and leasing personally. As ahigher rate taxpayer, dividend tax will be at 33.75%, meaning it pushes thetrue cost to a staggering £879 monthly.

The distinction is clear: leasing through the business reduces the monthlycost to approximately £486, while extracting funds and leasing personallyskyrockets it to £879. This presents a saving of £393 per month or roughly 45%.

The financial attraction of leasing an electric car through a limitedcompany becomes evident in these numbers. The tax advantages, corporation taxoffsets, and VAT considerations make it an attractive option for businesses.Not only does it deliver substantial financial savings, but it also allowsindividuals to contribute to environmental conservation -a win-win situation.

Choosing this route not only helps your business financially but also aligns with a sustainable future. As electric vehicles become the norm, leveraging their financial benefits through smart business decisions stands out as a clever strategy. So, consider the advantages and take a step toward both economic practicality and eco-friendliness by exploring electric car leasing through your limited company.

For more financial strategies, head to the ‘Blog’ section on our website.

Gravitate Accounting

Subscribe to Gravitate

Get industry insights that you won't delete, straight in your inbox.
We use contact information you provide to us to contact you about our relevant content, products, and services. You may unsubscribe from these communications at any time.

More news

Gravitate Accounting Weekly Roundup: Exams Aced, Xerocon Insights and Summer Fun!

Week 24 at Gravitate HQ has been a whirlwind of exciting achievements, industry learning, and team bonding!

Read Article

Sheffield Businesses Boost Profits with Local Digitalisation Grants!

New grants available for Sheffield Businesses moving into the digital world!

Read Article

A Message From Our New Partner Oku Markets

A few words from Harry Mills the Founder of Oku Markets on the latest announcement of our partnership!

Read Article

Q&A with Mental Health First Aider Becci Woolhouse

Listen to Executive Assistant Becci Woolhouse on how she became qualified as a Mental Health First Aider!

Read Article

Management Buyout (MBO) – The Pro’s, The Con’s and The Considerations to take!

A Management Buyout process is diverse and involves several critical steps that need to be carefully planned and executed.

Read Article

Know Your Corporate Finance Terms: A Guide for Business Owners

Expand your knowledge with these key Corporate Finance terms!

Read Article

10 Essential Questions To Ask Yourself Before Selling Your Business

Ask yourself these 10 crucial questions to ensure a smooth and successful exit when selling your business!

Read Article

Fuelling Growth: A Guide to Financing Options for Business Success

Explore the diverse range of lending options available, from traditional bank loans to innovative asset finance solutions.

Read Article

Will Corporate Finance Be Automated?

Corporate Finance Director Martin Dean discusses his thoughts on AI!

Read Article