Buy Tesla through private limited company

[adambg]

Hello,

I placed an order for a MYLR on 25th April 2022. The ETA delivery is September 2022 (after previously showing June). I've been tracking all the shipping movements non-stop! I can tell there's a lot of people 'in-front' of me in the queue, so I'll work on my patience.

Anyway, this thread is asking advice/experience of anyone who has bought (or is planning to buy) a Tesla through their own private limited company. I am a contractor so have a PLC and for now I'm outside IR35. My accountant made a bold statement that I could save about £10,000 if buying through the company, due to CT relief. However, I think this assumes the car devalues or I never sell it. If I wanted to sell after 3-4 years, I am guessing it won't have depreciated that much in value given the current market & demand for EVs and Teslas in particular. Therefore, the true saving would be a lot less (as I would then have to pay CT on my revenue from selling it).

The accountant also mentioned I would get tax relief on associated costs like maintenance etc.,

Another caveat is it only works if I make enough outside IR35 income to cover it, which I'm not yet sure of.

Just wondering if anyone else has any other factors I should think of before choosing whether to go personal/business. Tesla did say I could change it to business if I wanted without having to start a whole new order, so that's good if I decide to do it.

Thanks in advance,

Adam

 

[Jason71]

I agree with everything you have said.
The tax relief is important since without it you spend 50K on a car then still have to pay 10K in tax on the money you spent on the car so you need to have 60K. when you could then claim some back each year and then maybe a lump sum when you sell dependant on value. This way it works the other way around. You pay nothing upfront but get taxed on the income from selling the car down the line so net its the same tax just about when you pay it.
Yes the company can cover all of those expenses including the cost of a home charger, maintenance, accessories ( within reason) and insurance. but as you say you have to have non IR35 funds to cover it. obviously if you can afford to leave some money in the company if you switch to inside that money is still available to use going forward.
if you are leasing you only pay half the VAT I believe compared to personal lease as well
The big saving is paying 2% company car tax instead of taking the money out of the company having paid income tax or corporation tax/ dividend tax. I have not found a down side.
BTW if you cancel a company order technically they dont have to refund your deposit if you cancel or allow you to reject the car within 14days since you are not covered by the distance selling regs. whether they would hold you to this I don't know.

 

[WannabeOwner]

My understanding is that there is 100% first year writeoff. So you get the tax back on that.

the true saving would be a lot less (as I would then have to pay CT on my revenue from selling it).

Yes, there is tax (on "Profit") to pay on sale. But what are you going to do then? I figure that you will buy another EV, most likely at a higher price than the one you have just sold (i.e. making up the depreciation), so you have tax to pay on the profit of sale (100% profit 'coz of the first year write off) and then 100% first year write-off on the new one.

At some point that first-year-write-off will come to an end. So basically you have the "use of the money" in the meantime. If you can put that to good use then its worthwhile.

Plus the Benefit-in-Kind tax, which is currently tiny.

The "associated costs" is useful if you have a 17 year old sprog and they want to start learning to drive ... company can pay the insurance uplift on your company car. When I did that the company car was a VW Blue Motion Golf ... not sure that would be viable for a car capable of sub-5s 0-60 !

Company pays for my month subscription, and if I wanted to buy AB or EAP etc. As well as insurance, London EV congestion charge exemption (yeah ... you have to pay for that!!), tyres, service (don't bother with much of that), and so on.

I run two cars on this scheme (His and Hers) in case that is an option for you. So I get charged BiK on two cars. Accountant would have been happy to put a third on there for one of our sprogs, but I choose not to do that. Clearly its acceptable (in whatever circumstances my accountant may have been taking into account)

My accountant would be happy if I got a quote from WBAC (which are typically "not great") and then bought the car off the company. So that would be a route to reducing sale price if you needed to (although if you were doing that to flip the car it would have two previous owners, instead of one - if that matters). An option if you want a new company car and another family member want's your cast off (or just have two company cars as I have done)

Only downside I can think of is that the company gets lumbered with the car if an employee leaves - doesn't seem like a factor in your case

 

[adambg]

Thanks both for your detailed responses. I should have said in my original post that I had planned to do a PCP arrangement because I don't have enough cash (personally or in business) to buy up-front. I like the PCP option because it has the option to buy (or return).

My personal situation is that my wife & I are considering leaving the UK in about 3-4 years, so at that point I would either sell the car or take it with us. If I took it with us, I would still have to sell it to myself from my Ltd company as I guess I would shut down the company when we leave. So either way, I'm looking at having to sell the car in about 3-4 years and therefore (assuming little deprecation), I won't get much tax relief.

From reading your posts, it seems like you both concur there isn't really any disadvantage, and if all I gain in 3 years is a little bit of tax relief on insurance, maintenance etc., then it is worth it?

I guess I'll just have to calculate if I'll have enough outside-IR35 income to cover it!

Cheers

 

[PITA]

Agree with all the above.

That's how I bought my car, through my Limited Company.

Worked a treat.

 

[WannabeOwner]

if all I gain in 3 years is a little bit of tax relief on insurance, maintenance etc., then it is worth it?

Depends on whether you can make that money work for you in that time. I have no difficulty putting money to work

Use it to pay the severance on a disruptive member of the team, and improve productivity of the rest of the team by 10%.

Suggested to me by a friend

Its a bit like quantitively easing:

Tourist arrives at a hotel. "I'd like a room please". "Certainly Sir, that will be £100 deposit". He hands over £100 in cash.

Hotelier has not paid his butcher in a while so he nips round and pays his bill with the £100.

The butcher is behind on paying the beef farmer, so he nips round and pays him.

The farmer hasn't bought his mistress anything recently, so gives her the £100

The mistress has been using rooms at the hotel, and the hotelier has been generous on letting her account slide, so she pays him the £100

At which point the tourist comes down the stairs and says he doesn't like the room and can he have his deposit back ...

if all I gain in 3 years is a little bit of tax relief on insurance, maintenance etc., then it is worth it?

That's probably quite a bit of gain isn't it?

For you to pay that you have to pay tax on PAYE and Employee / Employer NI, and then pay the bill, and VAT (if that is applicable) out of Tax-paid income.

vs. The company pays the bill, claims the VAT back, and makes less profit - so a tad less corporation tax. The company probably also benefits in other ways from the lease (forgotten how, but probably on VAT which would not, otherwise, be claimable on a car - but I think is on a lease)

Company will claim the VAT back on all operating expenses - tyres, service, monthly subscription etc.

You presumably get the same "pay" as you got before, but you don't have to pay those bills at all, so you have more disposable-income. There is a bit less profit (which of course might impact your "pay")

If you are only paid by dividend then the NI doesn't apply, but PAYE / Dividend tax is similar in other regards, and the corporation tax and VAT stuff will be the same.

 

[GeorgeSymonds]

The CT thing is one to watch, as you say you might get 100% FYA and then pay CT on the sale price, but CT rates are going up so you’d pay tax at a higher rate than you got tax relief at.

When you sell, it’s not what the accountant thinks is acceptable as a valid, free market valuation that matters, it’s what HMRC thinks is fair if they decide to audit.

Another factor is if you do business miles. The rate within the company is 5p a mile, or with a fair bit of pain to justify, the actual charge costs, whereas as your own car you can claim 45p. 10k miles a year and that’s 4K extra you can take out the company tax free.

My last Tesla I sold for nearly 4K more than I paid, and my current MY could probably also be sold at a profit, if they’d been in my company that profit would have been taxed. It is very unusual at the moment but low depreciation, low servicing costs if anything, and some of the other factors mean it’s not a slam dunk. PCP through the company gives you the benefit of protecting you against big depreciation and allows you to buy if the depreciation is low, but they know that so they tend to charge you a little more for the privilege. If you’re likely to end up hit by IR35 and the car has to go, then make sure you’ve an early exit option.

 

[btc1k]

The other way is lease through your company, which is what I am doing.

£579 a month, half the VAT back, CT relief as it's a biz expense.

I then assume higher rate dividend tax off the remainder, as if I didn't have the car, I'd be paying myself extra dividends (and tax), to lease it myself.

Net cost to me is £285 a month, plus a little bit of BiK.

Then claim the 5p a mile (£500/yr or so), plus all insurance, maintenance etc is expensed.

Works for me as I didn't have £50k on hand to buy one, also as mentioned above - with CT rates rising I didn't want to get relief at 19% only then to repay most of it at 25% (or 23% marginal from 2023).

Also the company was able to expense a home charger

Yes valuations have remained high if I had purchased, but for £285 a month net cost via a lease, for me the sums work.

 

[adambg]

It definitely doesn't sound as clearcut as the accountant made it seem. Given how well they hold their value, I lose the tax benefit on the car itself, and could even lose out (as you say; if selling for a profit and/or CT tax rates increase).

So I just have to weigh up the CT tax savings on insurance, maintenance etc. against the additional BIK I have to pay if I do it through the company.

It’s basically impossible to know if it will be worth it and I feel whichever way it goes, it will be minimal in the grand scheme of things (£55k).

Adding the IR35 spanner into the works is another reason I might avoid it.

Thanks to all for the advice!

 

[adambg]

The other way is lease through your company, which is what I am doing.

£579 a month, half the VAT back, CT relief as it's a biz expense.

I then assume higher rate dividend tax off the remainder, as if I didn't have the car, I'd be paying myself extra dividends (and tax), to lease it myself.

Net cost to me is £285 a month, plus a little bit of BiK.

Then claim the 5p a mile (£500/yr or so), plus all insurance, maintenance etc is expensed.

Works for me as I didn't have £50k on hand to buy one, also as mentioned above - with CT rates rising I didn't want to get relief at 19% only then to repay most of it at 25% (or 23% marginal from 2023).

Also the company was able to expense a home charger

Yes valuations have remained high if I had purchased, but for £285 a month net cost via a lease, for me the sums work.

I haven’t really considered doing a lease because I don’t really like the idea of paying for something every month and ending up with nothing. Although I do concede that the ability to own a Tesla for only ~£300 a month is very appealing! But if I’m able to, I’d rather pay £1000 a month and treat it as an investment instead of an expense, and own the car at the end which I could even sell for basically the same price I bought it for.

I don’t actually do any business travel (permanently work from home) so I couldn’t claim the mileage

 

[btc1k]

It definitely doesn't sound as clearcut as the accountant made it seem. Given how well they hold their value, I lose the tax benefit on the car itself, and could even lose out (as you say; if selling for a profit and/or CT tax rates increase).

So I just have to weigh up the CT tax savings on insurance, maintenance etc. against the additional BIK I have to pay if I do it through the company.

It’s basically impossible to know if it will be worth it and I feel whichever way it goes, it will be minimal in the grand scheme of things (£55k).

Adding the IR35 spanner into the works is another reason I might avoid it.

Thanks to all for the advice!

BiK is 2% this year. 2% of £50k is £1,000 - and you pay tax at your marginal rate on £1,000. In the great scheme of things it's not significant and the tax savings via the company more than outweigh it.

Just did my P11D for £56 of ENI and £404 on the BiK for last year (£160!)

£160 of personal tax and of course the £56 ENI is another biz expense

 

[adambg]

BiK is 2% this year. 2% of £50k is £1,000 - and you pay tax at your marginal rate on £1,000. In the great scheme of things it's not significant and the tax savings via the company more than outweigh it.

Just did my P11D for £56 of ENI and £404 on the BiK for last year (£160!)

£160 of personal tax and of course the £56 ENI is another biz expense

Yeh my accountant said my BIK would be £371 plus £165 employer NI so I would ‘lose’ £536. I guess this means for CT of 19%, I would need to spend £2800 on insurance, maintenance etc. to break-even on this. I’ve never owned an expensive, new car before so I don’t know my expected costs, but I guess over a few years I would expect to spend more than this fairly easily? Probably just on insurance alone!

So in that case that bit is obvious. But I still have to weigh up the potential savings (as per the above) vs the potential loss if I end up paying more CT when I sell the car than I saved when I bought it.

 

[btc1k]

Yeh my accountant said my BIK would be £371 plus £165 employer NI so I would ‘lose’ £536. I guess this means for CT of 19%, I would need to spend £2800 on insurance, maintenance etc. to break-even on this. I’ve never owned an expensive, new car before so I don’t know my expected costs, but I guess over a few years I would expect to spend more than this fairly easily? Probably just on insurance alone!

So in that case that bit is obvious. But I still have to weigh up the potential savings (as per the above) vs the potential loss if I end up paying more CT when I sell the car than I saved when I bought it.

BiK is a personal expense and ENI is a business expense - so the net cost to you of the ENI is not £165, it's more like half that.

Don't forget the dividend tax you also "save" - as if the company is paying, then you are not from your post-tax income.

If £580 lease costs comes out my company, then I'm not paying it personally from my own bank account out of post-tax income, hence net £285.

On your question, the savings vs loss are difficult to forecast, particularly with the residuals. If you don't want the risk, then take a closer look at leasing.

 

[adambg]

BiK is a personal expense and ENI is a business expense - so the net cost to you of the ENI is not £165, it's more like half that.

Don't forget the dividend tax you also "save" - as if the company is paying, then you are not from your post-tax income.

If £580 lease costs comes out my company, then I'm not paying it personally from my own bank account out of post-tax income, hence net £285.

On your question, the savings vs loss are difficult to forecast, particularly with the residuals. If you don't want the risk, then take a closer look at leasing.

Ah yes, I had forgotten to take this into account in my calculations!

So obviously I am also speaking to my accountants about this but now they won't reply until Monday and I'm too impatient to wait Does this sound about right to you...

Purchase price of car: £54,990.
CT relief up-front = 19% * £54,990 = £10,448.

If hypothetically I sell the car in 3 years for the same price, then I would need to pay the new higher rate of CT (I'm not exactly sure how to work it out but I'll take 23% like you suggested). This would mean a CT bill of £12,648 on the sale of the car. So I would have 'lost' about £2,200 on CT. I think the car would have to deprecate by about 18% to break-even on the CT bill alone. Seems unlikely.

We also mentioned the BIK/ENI to pay = £536 (assuming 33.75% higher-rate tax rate). As you said, some of this can be a company expense. Anyway, the BIK is minimal in the grand scheme of things.

The bit I forgot as you pointed out is the saving in dividend tax. So am I getting this right.... if I were buying the car personally, I would have to withdraw about £83k (potentially over several years) assuming at the 33.75% dividend rate, to end up with £54,990 to pay for the car. Whereas, if the company is paying for the car, then I don't have to withdraw any of that £83k and I would save £83k * 33.75% dividend tax = £28k. Is that mathematically sound? I'm just confused because I've gone back and forth about 5 emails with my accountant about this and not once has he mentioned the dividend tax saving which you highlighted

Of course this doesn't even factor in potential CT (and dividend tax) savings on associated costs.

If the dividend tax saving thing is accurate as I calculated above, then once again this seems like a no brainer. Have I got it right?

Thanks a lot for your help!

 

[btc1k]

Ah yes, I had forgotten to take this into account in my calculations!

So obviously I am also speaking to my accountants about this but now they won't reply until Monday and I'm too impatient to wait Does this sound about right to you...

Purchase price of car: £54,990.
CT relief up-front = 19% * £54,990 = £10,448.

If hypothetically I sell the car in 3 years for the same price, then I would need to pay the new higher rate of CT (I'm not exactly sure how to work it out but I'll take 23% like you suggested). This would mean a CT bill of £12,648 on the sale of the car. So I would have 'lost' about £2,200 on CT. I think the car would have to deprecate by about 18% to break-even on the CT bill alone. Seems unlikely.

We also mentioned the BIK/ENI to pay = £536 (assuming 33.75% higher-rate tax rate). As you said, some of this can be a company expense. Anyway, the BIK is minimal in the grand scheme of things.

The bit I forgot as you pointed out is the saving in dividend tax. So am I getting this right.... if I were buying the car personally, I would have to withdraw about £83k (potentially over several years) assuming at the 33.75% dividend rate, to end up with £54,990 to pay for the car. Whereas, if the company is paying for the car, then I don't have to withdraw any of that £83k and I would save £83k * 33.75% dividend tax = £28k. Is that mathematically sound? I'm just confused because I've gone back and forth about 5 emails with my accountant about this and not once has he mentioned the dividend tax saving which you highlighted

Of course this doesn't even factor in potential CT (and dividend tax) savings on associated costs.

If the dividend tax saving thing is accurate as I calculated above, then once again this seems like a no brainer. Have I got it right?

Thanks a lot for your help!

Not all accountants are experts

Your calcs seem sound. CT goes to 25% from next April (at the moment), but there is a small profits rate for 50-250k which is tapered, my marginal rate will be about 23% but yours might be different.

For the dividend tax - yes I agree - that is how you have to look at it (if you don't have the money to hand).

Any money you draw, you have to pay divi tax on. Whereas if that same money is used pre-tax in the company for expenses, and you get to use it personally, then it's free of personal tax - which is why company cars work well with low BiK.

If you assume you buy the Tesla in your company, claim 100% FYA, then sell it on at same price, there is no tax saving and potentially a charge, so not very attractive, and you tie up £55k of company funds. However offset that with potentially running a car with no depreciation. But how likely is that? Many seem to assume that high residuals on Tesla's will last forever and ever...

For me, I didn't have the funds in my company, and didn't want to take some unknown risk on residuals. So for £285/month, I was happy for the problem to be solved for a small price. All inclusive motoring but such a small monthly fee works for me.

 

[adambg]

If you assume you buy the Tesla in your company, claim 100% FYA, then sell it on at same price, there is no tax saving and potentially a charge, so not very attractive, and you tie up £55k of company funds.

Just to confirm, here you mean there is no CT saving...but presumably the dividend personal tax saving still applies?

If I bought the car for £54,990 and sold it 3 years later for £54,990, I would lose about £2k-£3K on CT (due to rate rise), but I'd still have saved about £28k on dividends...right? So still seems a no brainer? And then any other expense I can run through the company further increases both the CT relief (because other costs like insurance don't eventually get sold, so there is no future CT to pay, only CT to save), and further increase dividend tax savings?

I didn't want to take some unknown risk on residuals

Don't quite understand what you mean by this? Surely if the car doesn't devalue, then I don't get any CT tax benefit (could even lost out), but if after 3 years it has devalued, then I will end up gaining via CT relief? And the fact it's devalued and hence I can sell it for less is no different vs if I owned it personallly. So what's the risk? Do you mean the risk CT rate goes up and the car holds its value or even appreciates?

 

[GeorgeSymonds]

You're looking at the dividends on the purchase price. In the "no depreciation example", in year 1, assuming 100% FYA, you'd save 28k on the dividends, assuming you pay yourself out in full, but when the car goes, the CT is 2-3k higher and you'd have 54,990 in the company to pay yourself so you'd pay 28k more, and possibly even more than that if rates go up, in the year the car goes. The net is you are worse off.

The dividend "saving" is effectively against the depreciation and runnng costs for tyres, insurance etc, over the life span of the car, not the purchase price.
An example using very rough figures (please somebody comment if I'm wrong)
Year 1 (first colum is not company car, second column is, car is 100k and 50k for easy figures.
100k - 100k profit
0 - 50k FYA allowance
100k - 50k net profit
18k - 9k corp tax
82k - 41k dividend
28k - 18k dividend tax (need to check my rates are right)


Year 2
100k - 100k profit
0 - 0 FYA
100 - 100 net profit etc


Year 3 sell car
100k - 100k profit
0 - 40k from selling car
100k - 140k net profit after car sale
18k - 26k corp tax
82k - 114k dividend
28k - 40k dividend tax

 

[adambg]

You're looking at the dividends on the purchase price. In the "no depreciation example", in year 1, assuming 100% FYA, you'd save 28k on the dividends, assuming you pay yourself out in full, but when the car goes, the CT is 2-3k higher and you'd have 54,990 in the company to pay yourself so you'd pay 28k more, and possibly even more than that if rates go up, in the year the car goes. The net is you are worse off.

This assumes (fairly) that when I sell the car, I would immediately choose to pay myself the entire sale proceeds as a dividend, which as you said, would then cancel out the dividend saving (or cost more, if dividend rates have increased).

However, my personal situation is that I plan to shut the company down shortly after selling the car so at that point I think I could withdraw the money in the company with Entrepreneurs Relief and only pay 10% dividend tax. So I'd still save a third or so.

I'll confirm everything with accountant of course!

 

[btc1k]

Just to confirm, here you mean there is no CT saving...but presumably the dividend personal tax saving still applies?

If I bought the car for £54,990 and sold it 3 years later for £54,990, I would lose about £2k-£3K on CT (due to rate rise), but I'd still have saved about £28k on dividends...right? So still seems a no brainer? And then any other expense I can run through the company further increases both the CT relief (because other costs like insurance don't eventually get sold, so there is no future CT to pay, only CT to save), and further increase dividend tax savings?



Don't quite understand what you mean by this? Surely if the car doesn't devalue, then I don't get any CT tax benefit (could even lost out), but if after 3 years it has devalued, then I will end up gaining via CT relief? And the fact it's devalued and hence I can sell it for less is no different vs if I owned it personallly. So what's the risk? Do you mean the risk CT rate goes up and the car holds its value or even appreciates?

I meant risk on residuals - i.e I'd always rather lease and not take any risk on resale values or reselling etc, (no matter what the tax position).

Leasing you just pay the monthly fee and then hand it back (so no risk on residuals).

Was talking about leasing vs purchasing with a view on risk of exposure to residual values, as opposed to tax savings. Sorry

 

[btc1k]

This assumes (fairly) that when I sell the car, I would immediately choose to pay myself the entire sale proceeds as a dividend, which as you said, would then cancel out the dividend saving (or cost more, if dividend rates have increased).

However, my personal situation is that I plan to shut the company down shortly after selling the car so at that point I think I could withdraw the money in the company with Entrepreneurs Relief and only pay 10% dividend tax. So I'd still save a third or so.

I'll confirm everything with accountant of course!

Entrepreneurs Relief... Tidy

Just make sure your accountants prepares for this years in advance.....