Drive a Tesla and Save Tax?
What was the problem?
Our client likes his cars and for years, he has driven a sports car, owned, and maintained by the company. Each year, the Director has suffered a Benefit in Kind on the cost of the car because he also uses it for private journeys. The Benefit in Kind system also meant that the Company suffered tax. All in all, the annual tax suffered by the Director and the Company was not insignificant.
As a result of having a Benefit in Kind, the Director could not take the dividends and salary that he wanted without losing his tax-free personal allowance which would have meant paying a marginal rate of tax of 60%.
What was the solution?
For the tax year starting on 6 April 2020, HMRC introduced a tax exemption, whereby fully electric cars were charged with a Benefit in Kind Rate of 0%. This compares to 37% at the opposite end of the emissions scale.
As Sherlock & Co keep informed of current and future tax legislation and given that we ‘know’ our clients, we discussed the new rules with our client so he could make an informed decision.
What was the result?
Our client is now the proud driver of a Tesla!
Our client weighed up the pros and cons and decided to go electric. As a result, he now drives a green car and in the 2020/21 tax year, the Director and the company suffered no benefit in kind. The car was acquired by the company and the company received a 100% writing down allowance on the full cost of the car. In addition, the company pays for all of the running costs and these are tax deductible too.
The by-product of the above is that the Director took bumper dividends in 2020/21 to top up his income to the full £100,000 which meant he had more cash than normal to spend on him and his family.
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