Low Emission Cars… Tax efficient?

Calling Limited Company Directors who need a Business Car!

Lower your corporation tax by buying and driving a car? AND be safe in the knowledge that you are lowering your carbon foot print too? Sounds too good to be true doesn’t it!

The Ideal Scenario:

I met a chap yesterday who had bought a Toyota iQ (other good low emission cars are available from your local retailer) – which his wife had affectionately nick named ‘Tootie’. He had purchased his car for £12,000 and had saved £2000 on his Corporation Tax Bill.

He also had put himself in a better IR35 position, as he had his business car branded with his logo. Aside ensuring lot’s of sightings around town – giving him better brand awareness this also shows that the vehicle is definitely for business use. It also identifies that he had spent a significant amount of money on marketing (see our IR35 Business Entity Test here to find out how you fare).

Here are the facts from our lovely Tax Manager Celine, about low emission cars:

Capital Allowances

Click here for a thorough explanation of what a Capital Allowance is.

If you buy a new car for your business that has CO2 emissions of 110 grams or less per kilometer (g/km) driven, or is electric (making it exempt from the road tax or car tax), you can also qualify for a 100 per cent first-year capital allowance.

Calculate your car’s Co2 omissions here.

This allows you to offset the whole cost of the investment against taxable profits in the year you make the purchase – until 31 March 2013.

*please note* The 110g/km will be reduced to 95g/km from 1 April 2013.

Company car – ‘Benefit in Kind’ effects

If a contractor buys a ‘green’ low emission car, with emissions not exceeding 120g/km CO2, then the Benefit In Kind is measured at only 10% (if petrol) of the list price (or 13% if diesel). Your Limited Company would make all payments for the maintenance of the car etc.

An electric car, with no CO2 omissions accrues no benefit in kind charge at all.

That’s really the basic facts on it from a tax perspective!

It’s safe to say that Smart Cars are smart in more ways than one…

Other Benefits of a Low Emission Tax, aside the tax efficiencies

  • Those who own electric cars will not have to pay the fuel tax because no fuel is used in the car. Hybrid car owners will pay significantly lower fuel taxes because less fuel is being used.
  • Drivers of low emission cars are exempt from the London Congestion Charge – as they are not causing any congestion.
  • When purchasing Low emission ‘green’ car insurance, consumers will purchase at a lower price than those with standard vehicles.
  • There are lower general running costs of having a low emission car.

We can advise our clients further on a case by case basis, as we need to know mileage involved etc– so if you are thinking of purchasing this type of car, please do send a query to your Account Manager, who, as always, will be more than happy to help.

If Contractor or Freelancer purchases a low emission car they would get 100% annual investment allowance on it, reducing the profits subject to corporation tax.

QAccounting. You Count. We Count.

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