Contractors’ Questions: What makes an electric car VAT-qualifying?

Contractor’s Question: Thanks for this interesting read CUK as I'm a limited company considering purchasing an electric car, too!

It's a second-hand electric car but apparently ‘VAT qualifying’ - which my accountant said brings it to a very appealing price. What does that mean in terms I’d understand please, as the adviser is now on holiday and I’d like to proceed?! If I want to buy the e-car through my limited company, rather than personally, I presume the ‘V5’ needs to be in the company name rather than mine, or does it not matter?

Lastly, do I have to do anything special with insurance? And I assume the company can pay for the cover entirely? If it helps to know I've got what appears to be a reasonable quote for me personally. Is this going to be OK, or do I need to have something special, given the current quote’s personal?

Expert’s Answer: A ‘VAT qualifying’ car is either a brand new vehicle or a car that has been owned previously by businesses that have claimed VAT when purchasing it.

What does VAT-qualifying mean?

If the electric car is ‘VAT qualifying,’ then it means VAT can be claimed on the purchase, provided that it will be used exclusively for the purposes of your business.

Should the electric car be made available for the private use of an employee, then a limited company would not be able to claim back the VAT paid as part of the cost of the car, and a benefit-in-kind charge would also need to be declared based on the manufacturer’s list price for the car, when it was new.

Beware, company car rates on EV are set to increase

Currently, this benefit-in-kind charge is calculated as 2% of the list price for fully electric cars. Yet be aware that this amount is set to rise by one per cent each year for three years from the start of the 2025/26 tax year on April 5th 2025.

For your electric car to be treated as a company asset and for corporation tax relief to be given on the cost of the vehicle, the purchase must be made in the company’s name. Your limited company can then also arrange for the insurance of the car and claim the full amount of the insurance premiums as an allowable expense.

The expert was Greg Timson, chief accountant at contractor accountancy firm inniAccounts.