buy or lease a vehicle
Discussion
Mate of mine needs a pick up for work and wants a L200 warrior double cab , He has found a deal for a new one for £229 +vat per month over 3 years then he hands it back at the end of the term. the vehicle will be paid for through his business (ltd co) , Looking at figures comparing to buy one outright rather than lease with depreciation etc I would think it will depreciate as much aswhat is costs to lease for three years so much of a muchness, but from a business / tax point of view which would be the best way to do this, buy outright, buy but finance it through business or lease it.
thanks in advance.
thanks in advance.
Companies tend to like 'sell and lease back' to free up capital, though they pay more overall (else the rental company would fold) they make money with the cash. Individuals choose to lease if they don't have the cash, or think it is simpler to let someone else own and service.
What would his company do with the cash otherwise?
What would his company do with the cash otherwise?
Tax relief on leased vehicles is VERY different to tax relief on owned vehicles ("owned" vehicles includes vehicles purchased using a bank loan or a HP - but NOT a finance lease).
If the vehicle is leased, the tax treatment depends on the nature of the lease.
If it is a simple rental agreement (Operating Lease), the business obtains tax relief by merely charging the full monthly rental costs to the business profit and loss account. That's it - nothing more to do.
If it is a Lease Hire arrangement/Contract Hire/Finance Lease, the vehicle is capitalised in the balance sheet as a fixed asset and the capital element of the finance is posted to the balance sheet as a liability - very similar to the way a HP agreement is treated in actual fact.
The only element charged to the profit and loss account is the finance cost element (not the capital element) of the monthly leasing payments.
The Revenue, unusually, allow the normal Depreciation charge on the leased asset to be claimed as a legitimate tax deductable expense. It is the only situation where they allow accounting style Depreciation as a tax deductable cost.
The business CANNOT claim any Capital Allowances on this asset as the asset is still owned by the leasing company and they will be making the Capital Allowances claims.
The differences between owned and leased vehicles is going to become even more important after 31 March (for companies) or 5 April (for sole traders/partnerships). Owned assets (including those financed by HP or bank loans) will be elligible for 100% write off in the year of purchase. This very useful capital allowance will not be available on a leased vehicle (at least, not to the business using the asset).
There are some restrictions on the new rules - the maximum claim is £50,000 per annum and the relief is available only to "small" businesses. I'm not sure how they define "small" in this case but I'm sure that the vast bulk of one man band operators will qualify.
If the vehicle is leased, the tax treatment depends on the nature of the lease.
If it is a simple rental agreement (Operating Lease), the business obtains tax relief by merely charging the full monthly rental costs to the business profit and loss account. That's it - nothing more to do.
If it is a Lease Hire arrangement/Contract Hire/Finance Lease, the vehicle is capitalised in the balance sheet as a fixed asset and the capital element of the finance is posted to the balance sheet as a liability - very similar to the way a HP agreement is treated in actual fact.
The only element charged to the profit and loss account is the finance cost element (not the capital element) of the monthly leasing payments.
The Revenue, unusually, allow the normal Depreciation charge on the leased asset to be claimed as a legitimate tax deductable expense. It is the only situation where they allow accounting style Depreciation as a tax deductable cost.
The business CANNOT claim any Capital Allowances on this asset as the asset is still owned by the leasing company and they will be making the Capital Allowances claims.
The differences between owned and leased vehicles is going to become even more important after 31 March (for companies) or 5 April (for sole traders/partnerships). Owned assets (including those financed by HP or bank loans) will be elligible for 100% write off in the year of purchase. This very useful capital allowance will not be available on a leased vehicle (at least, not to the business using the asset).
There are some restrictions on the new rules - the maximum claim is £50,000 per annum and the relief is available only to "small" businesses. I'm not sure how they define "small" in this case but I'm sure that the vast bulk of one man band operators will qualify.
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