For a business requiring the combination of a minimal outlay with maximum tax efficiency, Finance Leasing provides an alternative to contract hire. Although the business will never actually own the vehicle directly, finance leasing allows many of the benefits associated with ownership available to the business, while at the same time offering significant tax advantages.
If your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is used solely for business purposes. For the duration of the Finance Lease agreement, the vehicle will be shown as a 'leased asset' within your balance sheet. Rentals are treated as a revenue expense and may be offset against your taxable profits.. At the end of the agreed lease period, the vehicle is sold and the proceeds are used to clear any "balloon" payment. If the sale proceeds do not cover this amount, then the lessee must make up the shortfall. Should the proceeds exceed the "balloon" then the difference will be refunded as rebate of rentals.
Where sale proceeds of the vehicle exceed the "balloon rental", the difference is returned as a rebate of rentals.
If your business is looking for a comprehensive, fixed cost motoring package where full usage of a new vehicle is important but ownership is not, then you should consider contract hire.
Maintenance can be included as part of the contract. As you are hiring the vehicle as opposed to buying it, at the end of the contract you simply hand the vehicle back, leaving you with no disposal worries (subject to mileage and condition).
Contract Hire is an extremely tax efficient method of funding a business vehicle, as it is off balance sheet and rentals may be offset against taxable profits.
If your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is used solely for business purposes.
Hire Purchase is a simple and effective way for private individuals and businesses to spread the cost of a new or used vehicle.
Pay a small deposit and the VAT up front and then make monthly repayments over an agreed period of time from 24 to 60 months. Once all the payments have been made along with any document or purchase fees you take full ownership of the vehicle.
If you are a business user, all of the interest on your payments is allowable against tax, additionally a proportion of the vehicle value can be written down against your profits.
Lease Purchase is similar to Hire Purchase, you pay a low deposit and the VAT up front then make the remaining payments at a fixed rate over an agreed period, between 24 and 60 months, but your monthly payments are significantly reduced by choosing a final balloon payment.
This balloon payment is based on the vehicles anticipated mileage and estimated resale value at the end of the agreement. Once the final balloon payment is made you take full ownership of the vehicle. All of the interest on your payments is allowable against tax.
Additionally, a proportion of the vehicles value can be written down against profits. No VAT is added to the monthly payments as it is paid up front along with your deposit.