- So I recently bit the bullet
and did the standard Youtuber thing
of getting a brand new Tesla Model 3.
And so in this video I wanna explain to you,
and more importantly to my mum who's watching,
why this wasn't just a massive flex,
and why I think it was actually
a pretty reasonable financial decision.
So I bought the car in July 2020
and I ordered it online, which was a very nice experience.
The base price of the Standard Edition is 40,490 pounds,
but I went for the Long Range model,
which was 46,990 pounds,
and then added the white to premium interior
and the blue paint for the exterior,
that was 1000 pounds each.
So adding an extra 2000 pounds,
brought up the cost of 48,990,
which when you take the insurance into account,
which is about 1000 pounds
leads us to a total cost of the car of around 50,000 pounds.
But this 50k isn't what the car actually cost to me,
it actually costs less than half of that
and let's break down why.
So when you have a business,
you've got this concept of writing off business expenses,
which is a term you might have heard of before.
Basically what it means is that,
if you're buying something purely for business use,
then you can take the cost of it out of the business
rather than out of your own personal bank account.
So if you've got a business
and you buy something that's exclusively for business use,
what you can do is, you can write it off
as a business expense,
which means the cost of the item
doesn't count as your profit because it's an expense,
and therefore you don't have to pay
any corporation tax on it.
In the UK, corporation tax is 19% at the moment.
So let's say your business makes 100,000 pounds
in profit for the year, 19% of that goes to the government,
so you pay 19,000 pounds and corporation tax.
But let's say I wanted to buy something
like a Tesla Model 3 for the business,
that would be 50,000 pounds.
And so it would reduce the overall profit of the business
down to 50,000.
I still pay 19% corporation tax on the remainder,
so I'd be paying 9500.
But my total corporation tax bill
is 19% less than the cost of the vehicle.
So I'm paying 9500 pounds less corporation tax,
because this counts as a business expense.
And so if we think about this 9500 pounds of tax
that we're saving, in the end, this 50,000 pound car
actually only ends up costing my business 40,500
because of the corporation tax saving,
but that begs the question of,
is it actually legit to write off a car
as a business expense?
So if you wanna write something off as a business expense,
the rule is that it has to be wholly
and exclusively used for the business
and any personal use is insignificant or incidental.
So if you're a YouTuber,
and you're buying a camera, for example,
that's very easy to justify as a business expense,
because obviously you're using that mostly for business use,
but it would be a lot harder for me to justify for a car,
especially because this business
doesn't require me to travel all that much.
So in the UK, if you buy stuff as a business,
but then there is some personal use as well,
that gets a special tax code Benefit in Kind.
And it's like the government thinks
that you're being paid the value of the thing
that your business bought you,
and therefore you kinda get income tax on that amount.
And so if this were a normal car,
that would be quite a lot of tax
I would have to pay every year
for using it for personal reasons.
And often that would mean that it's actually not worth
buying a car as a business expense.
But crucially, in April 2020, the new budget,
which the Chancellor of the Exchequer sets out every year,
said that specifically fully electric cars
are exempt from benefit in kind tax.
And so the benefit in kind tax rate for this car
is zero percent,
which means I can buy it as a business,
and I can use it personally however much I want,
and I won't have to pay any extra tax.
And the reason they've done this,
is because in the UK over half of the cars that are bought
are bought by businesses.
And so the government's realized
that if they incentivize people to buy electric cars
by reducing the tax rates, that means overall,
more cars in the UK will become electric
and that will be good for the environment in the long term.
So currently the car's costing 40,500 pounds
because of the corporation tax saving,
but there's still a few more discounts
we can add to the price of the car.
So if you're a business owner,
and you wanna take money out of your business,
usually the best way of doing that
is by something called dividends.
The problem is that, like everything else in life,
dividends also get taxed.
And so in England, if you're a higher rate taxpayer,
i.e. you own more than 37,500 pounds a year, which I do,
then your dividend tax rate is 32.5%.
So let's say I want us to take out
10,000 pounds in dividends,
I'd be paying 3250 to the government as dividend tax,
and that would leave me with 6750.
Now, this is very relevant to Tesla discussion,
because the Tesla costs 50,000 pounds
and the alternative you not buying the car
and taking out cash instead,
means that I'd be taking out that 50,000 pounds
as a dividend.
So firstly, because that 50,000 pounds is profit,
it means it's taxed at 19% for corporation tax,
which takes it down to 40,500.
And then I take that 40,500 out as a dividend
which means it's gonna be taxed at 32.5%.
That means I have to pay 13,162 pounds
to Her Majesty's Revenue and Customs,
which leaves me with 27,337 pounds and 50p.
So thanks to corporation tax first and dividend tax second,
this 50,000 that I've tried to take out of the business
has gone down to just over 27,000 pounds,
but that's still not the end of the story.
We also have to take student loans into account.
So I spent six years at university studying medicine
if you didn't know,
and so my student loan has gone up to about 60,000 pounds
that I still have to repay.
And because the system is quite nice in the UK,
you only pay a certain percentage
of any amount you earn above around 20,000 pounds.
And so I've gotta pay 9%
of everything that I earn above a certain threshold
to the student loans company.
So if I wanna take out the price of this car as a dividend,
first it goes down from 50K to 27.3K,
thanks to corporation tax and dividend tax.
And then I pay another 9% of the student loans company,
which takes it down to 24,877.
So putting it all together,
let's think about these two scenarios.
Number one, buying the Tesla Model 3,
and number two,
taking out that 50,000 pounds in cash instead,
if I buy the Tesla Model 3 for 50,000,
it ends up costing my business 40,500
and I get a Tesla that I can ride whenever I want.
But if instead of trying to take that 50,000 pounds
in cash instead, it gets whittled down by corporation tax
the dividend tax and student loan repayments
to around 24,000 pounds.
And so in a way, I'm getting this 50,000 pounds car
for around 24,000, which is less than half price,
and personally, I will be more than happy
to pay 24 grand for a brand new Tesla Model 3.
And this whole thing about business expenses
is one of the reasons why having your own business
is such a powerful thing
because especially if you're a solopreneur or a creator,
or an internet entrepreneur,
most of the stuff that you're gonna buy
for business purposes, is actually gonna be tech,
and so you can afford a fancy ass camera
or a fancy ass MacBook or like a super widescreen monitor.
Because effectively you're getting all of this stuff
at half price or less.
If you found this interesting
and you're potentially interested
in starting your own business,
here is a video called "How To Make Money Online",
like the three levels of making money online,
where I explain how I got started
with making money on the internet
and how you can do the same.
Thanks for watching and I'll see you in the next video.
Bye bye.
(gentle music)