The average person spends hundreds, if not thousands, every month on their car payment. However, by changing the way in which you buy a car, you can reduce this payment by almost 50%.
In this article, we will discuss two different ways you can buy a car, how the numbers work differently for both of those, and which one will save you the most amount of money.
The focus will be on buying a new electric car, like the Tesla Model 3, at almost half price. Finally, we will go through the other factors to take into consideration when buying a new electric car.
How the “Discount”/Savings Work
In this section, we will discuss how you can save money when purchasing a Tesla Model 3 by understanding the financial benefits of buying the car under different ownership structures. We’ll compare buying the car outright under your personal name versus buying it within a company structure.
Option 1: Buying the Tesla Outright Under Your Personal Name
Let’s assume you want to buy a Tesla Model 3 with additional features worth £50,000. To keep things simple, we’ll assume you’re buying the car outright. Under this method, you make money or get paid your salary, pay taxes on that salary, and then buy the car with the amount left over.
For example, if you’re an employee earning £75,000, you would first pay your income tax and National Insurance (NI), which totals around £25,000. This leaves you with £52,000, from which you buy your £50,000 Tesla, leaving you with just over £2,000 left over.
Option 2: Buying the Tesla Within a Company Structure
The second option is buying the Tesla within a company structure. This is particularly beneficial for new electric cars like the Tesla Model 3 because they are 100% tax-deductible, meaning you can write off the full price of the car against your profits for that year. Additionally, electric cars have a lower benefit-in-kind (BIK) rate, which we’ll explain shortly.
Using the same scenario, let’s assume your company made £75,000. If you buy the Tesla through your company, you can write off the full value of the car, so instead of paying corporation tax on the £75,000, you now pay tax on the £25,000 remaining after the £50,000 expense. This means you save almost £11,000 on corporation tax.
However, you might be wondering if this is a legitimate business expense. This is where the benefit-in-kind (BIK) comes into play. BIK is defined as goods and services provided to an employee for free or at a greatly reduced cost. The government imposes a tax on the value of that good or service.
For electric cars like the Tesla Model 3, the BIK rate is much lower, currently at 2% of the car’s value. This amounts to £1,000 in our example. You would then be required to pay personal tax on that BIK amount, either 20% if you’re a basic rate taxpayer or 40% if you’re a higher rate taxpayer.
Once you add this BIK and the Class 1A contributions to this amount, the total tax you pay between the company car and the corporation tax is just over £5,000, leaving you with over £20,000 left over even after buying the car. That’s a huge difference compared to the first scenario, where you only had £2,000 left over.
The Bottom Line: Buying a Tesla for Nearly Half Price
By taking advantage of the tax savings from buying an electric car within a company, you’re essentially getting the Tesla for nearly half price. With the same £75,000 earnings, under the first scenario, you have £2,000 left over and a new Tesla, while under the second scenario, you have £20,000 left over and a new Tesla.
This significant savings can be invested in stocks and shares. However, it’s important to note that when you sell the car through the company, the sale price will be seen as profit, and you will have to pay corporation tax on that amount, which will partly offset the tax savings. Nonetheless, you will still be financially better off than you would have been under the first option.
Other Financial Factors to Consider
When it comes to electric cars like Tesla, there are additional financial factors to consider that can impact your overall savings. These factors include general maintenance costs, congestion charges, road tax, charging costs, and insurance. By taking these factors into account, you can better understand the potential savings associated with electric car ownership.
Lower Maintenance Costs
Electric cars generally have lower maintenance costs compared to their non-electric counterparts. Since electric vehicles do not have an engine, there are minimal maintenance or service costs. This can result in significant savings over the lifetime of the car.
No Congestion Charge and Road Tax
Another advantage of electric cars is the absence of congestion charges and road taxes. This can lead to further savings, particularly for those who frequently drive in congested urban areas.
Charging Costs and Tax Deductions
Charging an electric car is typically cheaper than fueling a traditional vehicle, which can lead to additional savings. Moreover, the cost of charging your car is 100% tax deductible, which can further reduce your overall expenses.
Insurance Costs
While insurance for electric cars can be more expensive than for non-electric vehicles, it is important to note that insurance costs are also 100% tax deductible. This can help offset the higher insurance premiums associated with electric car ownership.
In conclusion, taking advantage of the tax savings and other financial benefits associated with electric car ownership can lead to significant overall savings. With the high price of used cars in the current market, buying a new electric car and utilizing the tax advantages may be an option worth considering.
Additionally, you can explore lease and finance options for further flexibility. If you are interested in purchasing a Tesla, using the provided referral link will grant you 1,000 free Supercharger points. By carefully evaluating these financial factors, you can make a well-informed decision about whether an electric car is the right choice for you.
