How I Bought a Brand New Tesla Half Price
7th February 2024 | ⏰ 00:06:20
How I Bought a Brand New Tesla Half Price
TLDR: The YouTuber explained why buying a Tesla Model 3 was a reasonable financial decision for his business. By writing it off as a business expense, he saved 19% corporation tax on the car's cost. Additionally, the UK government exempts fully electric cars from benefit-in-kind tax, allowing him to use the car personally without extra tax. Furthermore, taking out the car's cost as a dividend and considering student loan repayments, the effective cost of the car was reduced to around 24,000 pounds, making it a good financial choice for his business.
Unveiling the Financial Acumen Behind My Tesla Model 3 Purchase: A Comprehensive Analysis
In the realm of content creation, it's become almost a rite of passage for YouTubers to flaunt their latest acquisition: a brand-new Tesla Model 3. While some may perceive it as mere ostentation, I aim to provide a nuanced perspective, delving into the financial rationale behind my decision, demonstrating that it was not just a frivolous splurge but rather a prudent financial move.
Navigating the Maze of Business Expenses and Tax Implications
When operating a business, one encounters the concept of writing off business expenses, a strategy that allows entrepreneurs to deduct the cost of certain purchases from their business income, thereby reducing their taxable profit. This concept proved pivotal in the acquisition of my Tesla Model 3.
The base price of the Standard Edition Tesla Model 3 stood at £40,490, but I opted for the Long Range model, which carried a price tag of £46,990. Adding the white-to-premium interior and the blue exterior paint brought the total cost to £48,990. Factoring in insurance expenses of approximately £1,000, the overall cost of the vehicle amounted to roughly £50,000.
However, this £50,000 figure does not accurately reflect the actual cost to my business. By leveraging the aforementioned business expense write-off, the effective cost was significantly lower. The UK's corporation tax, currently set at 19%, would have amounted to £9,500 on a £50,000 profit. By writing off the Tesla as a business expense, I essentially reduced my corporation tax liability, effectively reducing the cost of the vehicle to £40,500.
Benefit-in-Kind Tax: A Potential Pitfall, Cleverly Avoided
One might question the legitimacy of writing off a car as a business expense, especially considering that my business does not necessitate extensive travel. However, the UK's tax code provides a solution for such scenarios: the Benefit-in-Kind tax. This tax applies when a business provides an employee with a personal benefit, such as the use of a company car.
In the case of company cars, the Benefit-in-Kind tax is typically substantial, making it an unattractive option for business owners. However, in April 2020, the UK government introduced a significant incentive: fully electric cars are exempt from Benefit-in-Kind tax. This exemption proved to be a game-changer, allowing me to purchase the Tesla Model 3 as a business expense and use it for personal purposes without incurring any additional tax liability.
Dividend Tax: Navigating the Labyrinth of Personal Withdrawals
Beyond corporation tax and Benefit-in-Kind tax, I also considered the implications of dividend tax. Dividends, distributions of profits from a business to its shareholders, are subject to taxation. For higher rate taxpayers like myself, the dividend tax rate stands at 32.5%.
If I were to withdraw £50,000 from my business in the form of dividends, the corporation tax would reduce it to £40,500. However, the subsequent dividend tax would further reduce this amount to £27,337.50.
Student Loan Repayments: An Additional Financial Hurdle
As a medical school graduate, I have accumulated student loan debt of approximately £60,000. The UK's student loan repayment system mandates that individuals earning above a certain threshold must contribute a percentage of their earnings towards repaying their student loans.
In my case, I am required to pay 9% of my earnings above a certain threshold to the student loans company. If I were to withdraw £50,000 from my business as dividends, the student loan repayment would further reduce the net amount to £24,877.
Calculating the True Cost: A Tale of Two Scenarios
To fully appreciate the financial implications of my Tesla purchase, let's juxtapose two scenarios:
Scenario 1: Embracing the Tesla Model 3
- Initial Cost: £50,000
- Corporation Tax Reduction: £9,500
- Effective Cost: £40,500
Scenario 2: Opting for Cash Withdrawal
- Initial Dividend Withdrawal: £50,000
- Corporation Tax Reduction: £9,500
- Dividend Tax Reduction: £13,162.50
- Student Loan Repayment: £3,460.50
- Net Amount: £24,877
In essence, by purchasing the Tesla Model 3 as a business expense, I effectively acquired a £50,000 vehicle for approximately £24,000, a significant saving compared to the alternative scenario of withdrawing cash.
Embracing Financial Savvy: The Power of Business Ownership
The ability to write off business expenses is a testament to the power of business ownership, particularly for solopreneurs, creators, and internet entrepreneurs. Many of the expenses incurred in these ventures, such as technology purchases, can be classified as business expenses, offering significant financial advantages.
In conclusion, my decision to purchase the Tesla Model 3 was not a mere display of extravagance but rather a calculated financial move, leveraging tax deductions and exemptions to acquire a valuable asset at a substantial discount. I hope this in-depth analysis has shed light on the intricacies of business expenses, tax implications, and the overall financial benefits that can be reaped through strategic decision-making.
##FAQ: Q: How did the YouTuber save money on the Tesla Model 3 purchase?
A: The YouTuber saved money on the Tesla Model 3 purchase by utilizing various financial strategies:
Business Expense Write-off: The YouTuber wrote off the car as a business expense, reducing the overall profit of the business and subsequently lowering the corporation tax liability.
Benefit in Kind Tax Exemption: Since the Tesla Model 3 is a fully electric vehicle, it is exempt from benefit in kind tax in the UK. This means the YouTuber can use the car for personal reasons without incurring additional tax.
Dividend Tax Optimization: Taking out the car's cost as a dividend would have attracted dividend tax. However, by leaving the money in the business, the YouTuber avoided this tax.
Student Loan Repayments: The YouTuber's student loan repayments are based on a percentage of earnings above a certain threshold. By leaving the money in the business, the YouTuber reduced the amount of taxable income, resulting in lower student loan repayments.
Q: What is the overall cost of the Tesla Model 3 to the YouTuber's business?
A: After considering all the financial strategies, the overall cost of the Tesla Model 3 to the YouTuber's business is approximately £40,500. This includes the initial purchase price of £48,990, minus the corporation tax savings of £9,500.
Q: How much would the YouTuber have received if they had taken the £50,000 as a dividend instead of buying the Tesla?
A: If the YouTuber had taken the £50,000 as a dividend, it would have been subject to corporation tax and dividend tax, reducing the net amount to approximately £27,337. After considering student loan repayments, the final amount would have been around £24,877.
Q: Why is buying the Tesla Model 3 as a business expense financially advantageous for the YouTuber?
A: Buying the Tesla Model 3 as a business expense is financially advantageous because it allows the YouTuber to acquire a valuable asset at a significantly reduced cost compared to taking the same amount as a dividend. The combination of corporation tax savings, dividend tax optimization, and student loan repayment considerations results in a substantial financial benefit.
Q: What is the significance of the UK government's exemption of fully electric cars from benefit in kind tax?
A: The UK government's exemption of fully electric cars from benefit in kind tax is a significant incentive for businesses to purchase electric vehicles. It encourages the adoption of eco-friendly transportation, reduces carbon emissions, and aligns with the government's long-term environmental goals. This exemption makes it more financially viable for businesses to invest in electric cars, contributing to the UK's transition to a cleaner and more sustainable transportation system.