Leasing Electric Cars Through Your Limited Company

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 the gross amounts aligning with personal leases, the VAT treatment differs significantly. 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 cost for the business. Additionally, the company incurs a benefit in kind* cost for providing 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 that employees or directors receive from their company which aren’t included in their salary or wages.

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

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

So even at the lower rate of 19% (the higher the tax the more you save) the cost to the company of the monthly lease, plus accrued 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 this simple we have assumed at 40% -there’s ways this could be reduced and could argue that income pushed into higher rate would be taxed as a dividend but it’s insignificant to the outcome.

This would be an additional £30 per month taxed on the individual (no corporation tax savings as personal) but you would need to 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 a higher rate taxpayer, dividend tax will be at 33.75%, meaning it pushes the true cost to a staggering £879 monthly.

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

The financial attraction of leasing an electric car through a limited company becomes evident in these numbers. The tax advantages, corporation tax offsets, and VAT considerations make it an attractive option for businesses. Not only does it deliver substantial financial savings, but it also allows individuals 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.

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