How Can Businesses Maximise Tax Benefits When Acquiring Vehicles?

In the ever-changing landscape of tax regulations, businesses must stay informed about the latest developments. In this blog post, we will delve into the tax considerations surrounding the acquisition of vehicles, providing you with valuable insights into maximising benefits and complying with regulations. Whether you are a big corporation or a small business owner, understanding these intricacies can lead to significant tax savings.

What Are the Key Tax Considerations When Acquiring Business Vehicles?

In the March Budget, the Chancellor announced the introduction of “full expensing”. The purpose of this was to encourage investment by big companies. However, it is important to note that most small companies already receive immediate full tax relief. This is done through the Annual Investment Allowance (AIA), which has been permanently set at £1 million per year.

While full expensing and the AIA provide significant benefits for many assets, cars, unfortunately, do not qualify for these advantages. Recent controversies over Ultra-Low Emission Zones (ULEZs) have highlighted various reasons why businesses may want to switch to electric or low-emission vehicles. However, it’s essential to be aware of the specific tax issues associated with acquiring vehicles.

How Can Your Business Benefit from Tax Reliefs on Low-Emission Vehicles?

For cars with zero emissions purchased new before April 1, 2025, a 100% allowance is applicable. Ex-demonstrator vehicles are also considered new for this purpose, providing businesses with the opportunity to take advantage of this relief.

Other cars, however, qualify for slower tax relief. Cars with up to 50g/km CO2 emissions qualify for 18% per annum allowances, while those above 50g/km qualify for 6% per annum allowances. These allowances are given on a “reducing balance” basis, meaning that the tax relief is spread over several years.

If an employer makes a car available for private use by an employee or director, an annual benefit-in-kind charge applies. This charge covers all incidental costs associated with the car, except private fuel.

What Impact Does the Annual Investment Allowance Have on Your Vehicle Acquisition Strategy?

To incentivise the uptake of electric vehicles, the benefit charge for such cars is set at 2% per annum until April 5, 2025. For other vehicles, the percentage increases in bands based on CO2 emissions and the distance they can travel in pure electric mode, with a maximum percentage of 37%

If employees charge their electric vehicles while at work, the provision of free electricity does not result in a taxable benefit. However, the exemption does not apply if the employer reimburses the costs of charging the employee’s vehicle away from the workplace.

The car benefit charge for employer-provided cars covers all incidental costs except fuel. If the employer pays for fuel, an additional annual benefit charge applies. The rate at which the employer may reimburse fuel for business journeys is set quarterly. For business travel in an employee’s car, the employer can reimburse at a rate of 45p per mile. However, this is only for the first 10,000 business miles in a tax year, then at a rate of 25p per mile thereafter.

How can we help?

Acquiring vehicles for business purposes involves numerous tax considerations that should not be overlooked. Understanding the reliefs, benefits, and charges associated with vehicles is essential for making informed decisions and optimising tax savings. By staying up-to-date with current regulations and seeking professional advice when necessary, businesses can navigate these complexities and ensure compliance while maximising their financial resources.

Remember, tax laws are subject to change. It’s crucial to consult with a qualified tax advisor or accountant to address your specific circumstances and stay ahead of any amendments. To find out more about how to maximise your tax benefits contact us at 01903 234094