Dozens of electric car owners could be paying “thousands” of pounds in extra tax due to a recent rule change, according to accounting experts.
Specialists at Price Bailey warn updates in corporation tax laws could see those buying expensive electric vehicles caught out.
In April 2023, the main rate of corporation tax rose from 19 percent to 25 percent.
The Government was concerned that the higher rates would discourage companies from investing in assets so introduced a super deduction.
This gives companies capital allowances of 130 percent of the asset cost, bringing forward savings at 25 percent.
Price Bailey claims company directors buying EVs have been most affected despite many being on “modest incomes”.
Instead of claiming the 100 percent one-off first-year capital allowance, directors could save far more tax claiming the 18 percent annual writing down allowance.
This will allow them to deduct 18 percent of the cost of the car from their taxable profits in the first year and 18 percent of the balance in future years.
According to calculations, using a yearly write down allowance instead of a capital allowance to buy a £110,000 car would yield savings of £5,412 three years later.
William Wilson, Partner at Price Bailey, warned that motorists could be missing out on “significant” discounts.
He explained: “A large proportion of total new electric cars sales go to company directors.
“Many of these are small businesses with modest turnovers so a tax saving of several thousand pounds could be significant at a time when profits are being squeezed.”
“The hike in the rate of corporation tax this April means that many company car purchases are much less tax efficient.
“Company directors are still routinely being advised to take the first year 100 percent capital allowance when buying an electric car even though there is now a better alternative.
“There is a small window of opportunity to correct and resubmit this year’s corporation tax return to take advantage of the more tax-efficient writing down allowance.
“We urge directors to check how their car purchases have been accounted for tax purposes and act fast to make any necessary corrections.”
