100% First Year Allowance

[Alfaz]

Hello

Just looking for a bit of advice. I am looking into a few options for Company Cars on behalf of a director and I have come across this First Year Allowance that is available for Electric cars.

My question is, would it be possible to take advantage of this first year allowance on buying a Tesla Model 3 long range (approx £56k) which would mean a saving of c£10000 in corporation tax, but replace the car after a year? The vehicle would be worth approx £45k after a year and so would only cost the company around £1000 in depreciation. Then another similar electric car can be bought and it can be done all over again.

Is this just a cheat, or is it perfectly legal?

 

[mattk]

If you claim 100% First Year Allowance, you have to add the sale price to your profits when you "dispose" of the car. Therefore, you are only saving the CT on the depreciation.

https://www.gov.uk/capital-allowances-sell-asset

 

[Alfaz]

I thought there would be a catch somewhere

Thanks for your help.

 

[Spur Support Services]

As Matt says... Tax reduction as a result of Tesla for first year allowance £10.6k (but you still add back any depreciation in calculating the taxable profit).

Tax increase in second year in respect of sales proceeds "balancing charge" £8.5k (and still exclude any Depreciation and Gain/loss on disposal in calculating the taxable profit)

If you are going to change cars every year then the benefit of first year allowance is only a small timing difference. The time benefit of having the tax relief up front increases with the length of time that you plan to keep the vehicle.

However, the pure electric cars will have a no employee benefit which will also save employers National Insurance and employees tax. These are real savings.

 

[Alfaz]

However, the pure electric cars will have a no employee benefit which will also save employers National Insurance and employees tax. These are real savings.

Yes, there are significant savings to be had there, another thing i noticed is that there is currently 0% fuel benefit tax on electric cars. Is this worth taking advantage of or not? The car would do approx 15000 miles a year but not sure how much that would cost in electricity! However i imagine it would be quite difficult to keep an accurate record of these costs so i'm not sure whether it is worth the hassle.

 

[Alfaz]

Another question if i may relating to company cars, if we were to offer an employee earning £60k a car allowance instead of his current Skoda Octavia company car, what would be a reasonable amount? This employee is a manager who covers 30000 miles a year in his company car, but only around 5000 are business miles.

 

[Spur Support Services]

Another question if i may relating to company cars, if we were to offer an employee earning £60k a car allowance instead of his current Skoda Octavia company car, what would be a reasonable amount? This employee is a manager who covers 30000 miles a year in his company car, but only around 5000 are business miles.

At the end of the day, you can work out the cost of the fair cash allowance scientifically, but as with all Human Resource areas, strong, respectful employee engagement is paramount.

Cash allowances are taxable as employment income with all the tax, NIC and apprenticeship levy that involves.
For your calculations you should have to confirm whether that income was deemed to be pensionable income or not, but really that's an area that others would know more about.

At 5000 business miles, he'd still be able to claim all his business miles at 45p per mile off the company, but with such low business mileage on a high mileage vehicle the company may have scope to pay a reasonable allowance.
You would save the cost of buying or renting, maintaining, insuring and taxing the vehicle together with any business fuel claims he was claiming and the employers NIC on the benefit value.
Remember that the car will depreciate based on it's actual mileage and market, rather than the depreciation rate you to apply to all motor vehicles for the financial statements. So his vehicle is probably costing more than the average car.

He would save the tax on the underlying benefit,
but he would also suffer increased inconvenience of having to worry about all the costs and maintenance activities.
With 30k private miles that sounds like a significant regular commute, which means the employee may value his spare time very highly.
The provision of a car may have been one of the deciding factors in accepting the job for the salary offered, so there may need to be an incentive element in the cash allowance agreed to keep both employee and company happy.

I hope this helps... Apologies, I do ramble a bit much

 

[Alfaz]

At the end of the day, you can work out the cost of the fair cash allowance scientifically, but as with all Human Resource areas, strong, respectful employee engagement is paramount.

Cash allowances are taxable as employment income with all the tax, NIC and apprenticeship levy that involves.
For your calculations you should have to confirm whether that income was deemed to be pensionable income or not, but really that's an area that others would know more about.

At 5000 business miles, he'd still be able to claim all his business miles at 45p per mile off the company, but with such low business mileage on a high mileage vehicle the company may have scope to pay a reasonable allowance.
You would save the cost of buying or renting, maintaining, insuring and taxing the vehicle together with any business fuel claims he was claiming and the employers NIC on the benefit value.
Remember that the car will depreciate based on it's actual mileage and market, rather than the depreciation rate you to apply to all motor vehicles for the financial statements. So his vehicle is probably costing more than the average car.

He would save the tax on the underlying benefit,
but he would also suffer increased inconvenience of having to worry about all the costs and maintenance activities.
With 30k private miles that sounds like a significant regular commute, which means the employee may value his spare time very highly.
The provision of a car may have been one of the deciding factors in accepting the job for the salary offered, so there may need to be an incentive element in the cash allowance agreed to keep both employee and company happy.

I hope this helps... Apologies, I do ramble a bit much

Thanks, that does help.

He does a 50 mile commute each way 5 days a week which is why the mileage is so high!

From calculations i have done, i have discovered that the car costs the company £11k a year in total (including actual depreciation, fuel, NIC, insurance, servicing and repairs) currently! If the employee owned it privately, it would cost £10k a year. I have come up with a figure of £9k for a yearly car allowance which after tax is £4320 to the employee. This means that the car would cost the employee £5680 a year rather than the current £6700 he is paying in BIK and Fuel Benefit.

To me that sounds like a win win, even if £9k does sound excessive!