Claiming EV as capital allowance in UK by a sole trader / business partnership. Anyone had experience of the HMRC process and rules / reg's?

[Gezb]

I won't go into all my questions on the first post, apart from saying I'm in a business partnership (not a Ltd Co) and cash purchasing a MY . I've spoken to 3 IFAs/Accountants and had 3 different answers of how to interpret HMRC guidelines and process on the partnership and my tax returns.
If anyone has been though the process I'd welcome a chat in more detail.

 

[prabhu]

If in doubt, don't do it.

 

[candida]

I did it as sole trader and claimed first year 100% of my business use (80% of value of the car). Meant I paid Musk the whole lot but got £24k off my profit that year.
EDIT: here's a link that shows you can use it for demo/inventory cars too (I did) HMRC

 

[Gezb]

If in doubt, don't do it.

Thanks, that's a really helpful contribution! If you have a reason then share it.

 

[candida]

I did it as sole trader and claimed first year 100% of my business use (80% of value of the car). Meant I paid Musk the whole lot but got £24k off my profit that year.
EDIT: here's a link that shows you can use it for demo/inventory cars too (I did) HMRC

Sorry meant £24k off my tax. £51k-odd off profit

This just shows that if I can do it anyone can

 

[Gezb]

I did it as sole trader and claimed first year 100% of my business use (80% of value of the car). Meant I paid Musk the whole lot but got £24k off my profit that year.
EDIT: here's a link that shows you can use it for demo/inventory cars too (I did) HMRC

Thanks. That's a much more useful post!

I estimate that my business use will be approx 50% of the value so, using rough figures on a £56k model Y, I can claim £28k off my profit for the year. As it's a small part time business this will mean that we would have a small business loss for the year. I'll trawl through the HMRC doc you linked (thanks for that) but then need to understand if/how to carry that loss forward to benefit the next tax year.

I also perceive a benefit in that my wife, who is the other partner in the business, can then claim zero income for the year (as partnerships can allocate profit/loss between partners however they wish each year, which means she can then take a lump sum equal to her personal allowance from her pension which is in drawdown, so saving more tax and we can use that £15.7k to offset the cash payout for the car.

Do you also claim 80% of other costs against your business, such as home charger installation, insurance, portion of your electricity bill or per mile amount etc.?

Lastly (for now!), I believe that the flip side of this is that you need to inform the tax office that you now have a company car (2% BIK for 22/23) and whenever you sell the car in future the revenue received is taxable business revenue. Is this your understanding?

 

[mhuk01]

Sorry meant £24k off my tax. £51k-odd off profit

This just shows that if I can do it anyone can

Sounds interesting, I have a Model Y on order and am wondering if I can do this as a sole trader. Currently I just claim the 45p per mile expenses - can I do this too or is it either or?

 

[Arran]

This is completely wrong. Unless you're registered as a LTD you cannot claim a Car or a Company Car as a 'Expense'. Buying a car for business use as a Sole-Trader doesn't work, as there's no legal/tax difference between you as an individual and your company.

If you have already claimed it as an expense to HMRC, I'd really recommend reaching out to an accountant to workout the best way to reach out to HMRC to pay back the Tax you owe. Before they do. Company car vs. own vehicle - claiming tax relief - IT Contracting

You can claim 100% FYA on Electric Cars; however there's no concept of a 'Company Car' for sole-traders. So the 100% FYA doesn't apply.

Talking to a High-Street accountant will only cost a small fixed fee, to get alot of advice on what you can and can't do.

 

[Gezb]

This is completely wrong. Unless you're registered as a LTD you cannot claim a Car or a Company Car as a 'Expense'. Buying a car for business use as a Sole-Trader doesn't work, as there's no legal/tax difference between you as an individual and your company.

If you have already claimed it as an expense to HMRC, I'd really recommend reaching out to an accountant to workout the best way to reach out to HMRC to pay back the Tax you owe. Before they do. Company car vs. own vehicle - claiming tax relief - IT Contracting

You can claim 100% FYA on Electric Cars; however there's no concept of a 'Company Car' for sole-traders. So the 100% FYA doesn't apply.

Talking to a High-Street accountant will only cost a small fixed fee, to get alot of advice on what you can and can't do.

You are right that using the terminology "Company car" is very likely wrong, but the article you have linked clearly states:

"If you’re using the actual cost method you can also claim capital allowances on the business proportion of the cost of the car."

Therefore it is my understanding that any sole trader or business partner can claim capital allowance on the business use percentage of the cars value, and as we are talking about cars with 0 emissions then HMRC allow you to claim 100% of the allowance in the first year.

You're advice to reach out to an accountant is good and probably what I will do (accounts have been so simple in the past that I have always done the tax returns myself), but I want to be pretty well armed with the facts before engaging one and this thread is already showing that there is ambiguity and possible misunderstandings (including mine!).

I hope others will also contribute as I'm sure many will have been there, done that.

 

[VX Foxy]

Sounds interesting, I have a Model Y on order and am wondering if I can do this as a sole trader. Currently I just claim the 45p per mile expenses - can I do this too or is it either or?

No! You can’t do both

 

[Gezb]

Sounds interesting, I have a Model Y on order and am wondering if I can do this as a sole trader. Currently I just claim the 45p per mile expenses - can I do this too or is it either or?

Yes, I am sure that you can, though I'm clearly not sure of all aspects of how you document it on your tax return.

The key point is that however it is done, once you claim the 100% capital allowance, which is based on when you make the bulk payment not when you take delivery, the car becomes a business asset, so if you sell it in 3 years for, let's say, £30k then that is revenue that you must show in your sole trader accounts for that tax year.

HMRC's site @ https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles- clarifies that if you claim the car purchase as a capital allowance then you cannot claim use at the 45p rate. Instead you can then claim the actual cost (fuel/elec, insurance, ev charger, servicing/tyres etc.) which you then claim at the percentage business use you have specified to HMRC, and that they could ask for proof of.

 

[candida]

This is completely wrong. Unless you're registered as a LTD you cannot claim a Car or a Company Car as a 'Expense'. Buying a car for business use as a Sole-Trader doesn't work, as there's no legal/tax difference between you as an individual and your company.



Talking to a High-Street accountant will only cost a small fixed fee, to get alot of advice on what you can and can't do.

Oddly enough I did speak to my accountant first....

My question was:

"Am I right in thinking that if I buy a brand new electric car my profit gets reduced by the value of the car in the first year (though there’s a balancing payment when I move it on)? And if so, would that reduce my threshold income for pension purposes by the same amount?"

And the answer came

"Yes, that is correct."

And yes, he does appreciate my trading status is personal not corporate.

 

[candida]

Do you also claim 80% of other costs against your business, such as home charger installation, insurance, portion of your electricity bill or per mile amount etc.?

Lastly (for now!), I believe that the flip side of this is that you need to inform the tax office that you now have a company car (2% BIK for 22/23) and whenever you sell the car in future the revenue received is taxable business revenue. Is this your understanding?

I've always claimed the business miles % of motor expenses but cant be arsed with electricity. Though I do claim a proportion of home electricity for use of home as office.

It's not a company car as I'm not a company so BIK doesnt arise. The issue on sale is that you have to record the sale value as a gain

 

[prabhu]

Thanks, that's a really helpful contribution! If you have a reason then share it.

Contractor UK forum is full of such posts. It might be quite tempting to tap on to the business account for some cash, but HMRC has a whole floor of people to look for such expenses.

 

[prabhu]

Also BIK is just 1%! If you use a salary sacrifice scheme such as Octopus EV you can also reduce some personal tax.

 

[candida]

Contractor UK forum is full of such posts. It might be quite tempting to tap on to the business account for some cash, but HMRC has a whole floor of people to look for such expenses.

OP not a Ltd. Co.
Nor am I.
The pretend contractor scam is quite different.

 

[btc1k]

Also BIK is just 1%! If you use a salary sacrifice scheme such as Octopus EV you can also reduce some personal tax.

Right but the OP post was a partnership not LTDCO, so BiK doesn't apply.

 

[Gezb]

Also BIK is just 1%! If you use a salary sacrifice scheme such as Octopus EV you can also reduce some personal tax.

1% this tax year then 2% for forthcoming years

 

[JP2983]

I had similar questions and spoke directly with HMRC. The handler couldn’t answer my questions but she got a technical advisor to ring me back twice to answer my questions.

He confirmed, and I recorded the call just in case, that as a sole trader submitting returns on a cash basis that I could offset 100% of the FYA for an EV. However, if I didn’t have a large enough tax bill to cover the cost of the Model Y that it would then come off the following years taxes but only at the “main pool” rates of 18% per year.

So for £60k, say £20k reduction in tax bill first year, then £10800 remaining years until the total value has been offset.

I was told I could also claim for insurance and maintenance but not 8p a mile for EV mileage payments which are for those who have their own and haven’t claimed it as a business vehicle.

Obviously if you have personal use then that percentage has to be applied to all claims and reduced accordingly. I’d also recommend keeping detailed records of mileage for personal / business just in case you are audited.

Tax consultants wanted hundreds of pounds to give me information which seems to be incorrect, so whatever anyone else has to say on here, I would just ring up HMRC with your list of questions - they will take your NI number and make sure their answers are accurate to your circumstances. I even got a follow up email from them with some useful links. So believe it or not HMRC are here to help you!! Good luck and enjoy your Tesla!

 

[WannabeOwner]

He confirmed, and I recorded the call just in case,

You may be more fortunate than us ... at start of pandemic we phoned HMRC for clarification of delaying payment of VAT and some other tax (forgotten what that was - Corporation Tax or something to do with PAYE ...). Either way we were unsure and, it turns out, only VAT could be delayed.

HMRC advisor said we didn't need to pay either ... so we didn't.

... and then we got a fine for failure to pay the second one. We questioned it and asked for a transcript of the call (which clearly had the advice given that we didn't need to pay either). "Don't care" said HMRC "Pay the fine".

Makes Tesla Support look slick!