What you need to know about claiming VAT on an electric car for your business
Whether a business can reclaim VAT on electric cars is a question being asked more frequently by business owners. With COP26 currently taking place, more and more businesses are looking at how they can be more efficient and how they can work towards becoming carbon neutral. With this in mind, many businesses are looking to replace their future vehicles with electric cars.
HMRC states that VAT can be reclaimed on ‘a new car if you use it only for business’ whether electric or not. This is, however, a strict test and there must be no private use.
There is a common misconception that due to the benefit of an electric car being more environmentally friendly, they are subject to different rules. However, this is not the case and there is no difference with regard to VAT whether the car is electric, hybrid, petrol, or diesel.
What if I use my electric car for personal use as well as business?
To reclaim the VAT on electric cars or any other type of car, it needs to be used exclusively for business. If you use the car for a mix of personal and business travel, you will not be able to claim any of the VAT on it.
If you, or any of your employees, do use the vehicle for personal use, you will create a Benefit in Kind and income tax and national insurance will need to be paid on this. You will also need to prepare a P11D.
Remember, as far as HMRC are concerned, if you use your electric car to commute between your home and your office, this is classed as personal use rather than business travel!
Corporation Tax benefit
For an electric car purchased through a Limited Company, part of the cost can be offset against your corporation tax bill. Whereas with most cars the deduction is applied gradually over time, the full deduction can be claimed on an electric car in the year you buy it.
Other rates and allowances
There are several rates and allowances available if you purchase an electric car for your business rather than a petrol or diesel vehicle.
If you have any questions about claiming VAT on an electric car or are considering purchasing an electric vehicle for your business get in touch with Maynard Johns. We will be able to advise on what tax savings you may make in addition to any personal tax you may be subject to if the vehicle is classed as a Benefit in Kind.