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Electric Cars – Should I purchase through the company or claim mileage?

This is a question that is regularly asked. Company directors are often tasked with figuring which is the best option for them or for an employee.

To assist with this, I explore the costs and benefits of both options and also include a useful calculator in a downloadable spreadsheet format below.

Taking the example of a company director who travels 10k business km’s annually and is looking to purchase an Electric Car costing €45k on 1st July 2022.

Lets look at claiming Mileage.

Firstly, you have to purchase the vehicle. You get a grant of €5,000 so that leaves a net cost of €40,000.

Assuming this amount is fully financed over 5 years at 6% interest rate, the repayments will be €769 per month.

Running costs to include tax, insurance, tyres & service and electricity cost will average €131 per month.

This gives a total monthly outgoing in cash terms of €900.

Your mileage claim using the civil service max guidelines will equal a mileage claim in the year of €5,246. This averages out at €437 per month.

€900 (total outlay) less €437 (mileage claim) equals a net monthly outlay of €463 or €5,560 per year and a total cash cost of €27,799 over the five years.

Pros:

  • The upside here is that you will own the car and at the end of the 5 years you will have an asset with a resale value of €15k (estimated).

Cons:

  • You have to organise the finance yourself.
  • It may impact on your ability to borrow for other things e.g. mortgage
  • You are responsible for maintaining the car and paying the bills
  • Must keep a weekly log of business trips and mileage

It’s a greener option…

What about the company car route?

In this case, the company will purchase the vehicle. The company does not get a grant, but can claim accelerated capital allowances worth €3,000. That leaves a net cost of €42,000. Again, assuming this amount is fully financed over 5 years at 6% interest rate, the repayments will be €807 per month. Running costs to include tax, insurance, tyres & service and electricity cost will average €131 per month.

This gives a total monthly outgoing in cash terms of €900.

BIK exemptions are €50,000 in 2022; €35,000 in 2023; €20,000 in 2024; €10,000 in 2025;

Assuming you are a high rate tax payer, this means that in cash terms the BIK cost over the next 60 months to the employee/director in 2022 is as follows:

  • Zero in 2022;
  • €1,500 in 2023;
  • €3,750 in 2024;
  • €5,250 in 2025;
  • €6,750 2026 and
  • €3,375 in the six months Jan to June in 2027.

This totals a cash cost of €20,625 over the five years.

Pros for the company:

  • All costs are claimable as business expenses
  • Interest charge is claimable as a business expense
  • Accelerated Capital Allowances
  • Company is promoting Green

Pros for the Employee/Director

  • Employee or Director can sell their own car for cash as the company is now providing them with a car
  • No more one off costs like tyres, insurance etc. during the year.
  • Driving Green
  • Lower monthly cost in 2022 to 2025

Cons:

  • There is a €50k OMV limit for BIK which is reducing each year to 2026.
  • Capital allowances are limited to €24,000 on motor vehicles.

Conclusion:

The best way to look at this is to look at your claimable business mileage in the year. If you only do 5,000 business km’s in the year then your mileage claim would be a lot lower, in fact the net cash cost of the vehicle over the 5 years would be €38,934.

When you are doing low km’s of claimable business mileage and thinking of purchasing a new electric vehicle, then getting the company to purchase it on your behalf probably makes the most sense.

As an owner director, you could decide to purchase through your company and consider selling the electric car from the company to yourself at the end of year 3 or 4 and claim mileage from that point on. There may be some claw backs on capital allowances.

As always this is a guide and you should always get professional advice to consider your specific situation.


Don’t try and do everything yourself …

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John Carolan
john@solve.ie
Brenda Smith
brenda@solve.ie