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How to get maximum tax breaks when buying a company car

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Friday August 30, 2013 at 10:00am
The electric vehicle has been in the news a great deal over the summer, perhaps in place of some of the traditional political news stories. There have been complaints about the £7.2 million spent on unused charging points, announcements of new VW electric cars coming onto the market and the promise of new technology that could increase the range of such vehicles.

Electric and hybrid vehicles are just one of the initiatives aimed at reducing emissions and meeting government environmental targets, but there’s also scope for your business to benefit from these initiatives too.

If you buy a new car for your business that has CO2 emissions of no more than 95g/km, you can claim a full deduction against your business profits. There are approximately just 30 cars that fall into this category, but the list is growing.

If you run your business as a limited company, the private use element is reflected in an income tax charge as a benefit. This is also based on CO2 emissions, but the tax charge is low to reflect low emissions.

If you are a sole trader or partner, the private use element is reflected simply by a reduction in the 100% tax write-off. For example, 10% private use means that 90% of the cost is tax deductible. If you reduce your self-employed activities while still owning the car (perhaps through planning a phased retirement), you can create a tax opportunity. Upon selling the car, the sale proceeds are charged to tax, as you originally obtained tax relief on the full purchase price. This charge to tax is then reduced by reference to private use on what is called a just and reasonable basis. For example, an increase in private use to 25% by the time the car is sold can result in a tax charge on only 75% of the proceeds, rather than the 90% you might have thought.

HMRC provide guidance on this and we will always be ready to get the best tax deal for you in these circumstances.

Andy Parker
Chartered Accountant Birmingham

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here