Benefit-in-kind taxation for purchasing electric car through my own company

[bittered]

I've ordered a new Electric car, it will arrive in January 2024. Instead of purchasing it privately, I am considering buying it through the company and possibly purchasing it from the company in 2025 (after a year of depreciation) at fair market value.

The cost of the car is €53,612. That means at 52% income tax I would need to earn €103,100 before tax at the marginal rate (52%) to pay for it. I calculated first-year BIK at roughly €2k which would be much less than the expected depreciation (~20%) so it should be much cheaper to do it like this.

Here are my calculations (with references): https://docs.google.com/spreadsheets/d/1SUqM-HUiSpLVQeBXsJM7PAfzsjPHMMUbVL6ua_g9_7k/edit?usp=sharing

I want to make sure that (a) my calculations are correct and (b) that there aren't any unintended tax implications that I'm missing. I will run this by my accountant during the week but I'm hoping to get a gut check first.

 

[RedOnion]

you need to add a (c) to your list: company law considerations on transfers of assets between company & owner.

I'm not in the right mind frame to look into it now, but I think there's a piece missing in your workings between real depreciation, and the capital allowances a company is allowed to claim on a passenger vehicle - it used to be capped at 24k, and I'm not aware of any recent changes to that. So the company will make a loss that it cannot get tax relief on.

 

[Landscape]

Hi, yes. there will also be corporation tax payable on the difference between the accelerated capital allowance and the cost of the car. Something like 12.5% of (53k - 24k) I think.

I had heard when the company sells the car it should be at the market rate (not necessarily the 20% straight line deduction on the books).

On the plus, the company can pay for the car insurance, tax, maintenance & cleaning of the vehicle also while owned by the company.

If you decide to keep it in the company for longer than a year, in year 2 (in addition to any BIK) there would be a further annual corporation tax charge on the annual depreciation.

 

[flyingfolly]

I think what people sometimes don't understand with buying an electric car through a company is that the BIK allowance reduces each year. I can't remember the exact figures but its something like:

Year 1: 20k
Year 2: 15k
Year 3: 10k
Year 4: 5k

The value of the car never depreciates in the company, so by year 5 you're paying BIK on the full value of the car, even though its 4 years old. So you need to basically buy another new car again, or get rid of it (or continue paying BIK on a car's full value, even though its worth less). When we looked into it, we decided against it as I don't want to be stuck in a loop of having to buy a new car every 3-4 years to keep the BIK discount

 

[bittered]

you need to add a (c) to your list: company law considerations on transfers of assets between company & owner.

I'm not in the right mind frame to look into it now, but I think there's a piece missing in your workings between real depreciation, and the capital allowances a company is allowed to claim on a passenger vehicle - it used to be capped at 24k, and I'm not aware of any recent changes to that. So the company will make a loss that it cannot get tax relief on.

Thank you. Do you have any links or further info about (c)?

Regarding capital allowances cap. It does seem to be €24k. Assuming that the car depreciates by 20% in a year then that would mean that the max depreciation I can claim is 20% of €24k, right? Do the calculations below look correct to you?

1. Depreciation the company can claim within the cap (20% of €24k): €4,800
2. Tax relief due to capital allowances within the cap (12.5% corp tax): €600
3. Real depreciation on the entire cost of the car: €10,722.40
4. Tax relief the company would have gotten if the entire depreciation was claimable: €1,340.30
5. Difference in tax relief due to the cap: €740.30

So the company would be out of pocket by €740 in tax relief, is that correct?

 

[RedOnion]

Thank you. Do you have any links or further info about (c)?

Sorry, it's not something that will stop you doing it, but more you need to follow correct process. A sale of assets to a connected party needs to be passed at a General meeting of the company, if the asset is more than 10% of the company's assets. Or something along those lines, you should find it quickly enough searching 'company law connected party transactions'.

 

[RedOnion]

Regarding capital allowances cap. It does seem to be €24k. Assuming that the car depreciates by 20% in a year then that would mean that the max depreciation I can claim is 20% of €24k, right? Do the calculations below look correct to you?

1. Depreciation the company can claim within the cap (20% of €24k): €4,800

Ah, I didn't look at your workings properly, and you're closer to the correct answer than I thought. You're not using one of the biggest benefits - the company can get accelerated capital allowances on EV, and write off 100% of 24k in year 1.
But if the company sells it to you at the end of the year, it must be at fair market value so the company would make a 'profit' on the sale.

I don't have all the maths done out, but there's probably a sweet spot of the company keeping the car for about 3 years. I haven't looked at it properly for some time and the rules have changed in intervening budgets.

There was one a poster had done up before which might help identify other aspects:

Case study - Company Provided Electric Car - Tax Workings Review

Hi, I've been considering the purchase of an electric vehicle (eg: VW ID.4) through my company and have been crunching the numbers to see if there is any benefit going through the company versus paying down the money from the company as usual and buying it from after-tax income. Assumptions...

www.askaboutmoney.com

 

[RedOnion]

And one final consideration- the SEAI grant of 3,500 is only available for privately purchased passenger vehicles. If the company buys, there's no grant.

 

[bittered]

And one final consideration- the SEAI grant of 3,500 is only available for privately purchased passenger vehicles. If the company buys, there's no grant.

Thank you, I didn’t account for this. Probably a silly question but I’ll ask the question anyway, could I buy the car personally (to avail of the grant) and then the company buys the car from me the next day (at a slight discount to account for depreciation)?

 

[RedOnion]

@bittered ,
You would be creating red flags for audit having transfers of assets between owner & company. But I don't think there is anything to stop you.
I believe you would not be able to apply the accelerated capital allowances as the car would no longer be new.

Hopefully someone who has done it will reply. I stopped looking into this when the tax rules changed around 2020.

 

[T McGibney]

Thank you, I didn’t account for this. Probably a silly question but I’ll ask the question anyway, could I buy the car personally (to avail of the grant) and then the company buys the car from me the next day (at a slight discount to account for depreciation)?

Will having a new car with 2 owners registered within weeks of its first drive impact on later resale values?

 

[mc-BigE]

I have a related question regarding ACA, i purchased an company EV back in 2020, i claimed ACA on the 24K of the purchase price (57K) in that return year, then i sold the EV in 2022 and bought another EV through the company which i still have in 2024 (59K new), I claimed ACA again in 2022 return (well my accountant did)
now my accountant is saying there's a tax liability for 2023 return due to the capital allowances being "used up"

this is all a bit of a dark art for me , so i just wondering if the above sounds right?

by the way the sale of the first EV was 47K back into the company in the end of 2022, so roughly a 10K extra loan taken out on newer EV (not sure if this is relevant) so the deprication is probably over 2 EVS over 4 years.