Car Lease advice - for self emplyed
Discussion
Hi, I was wondering whether anyone could help me with a query.
My wife is a dentist, self employed at present...she was thinking of leasing a car no more that 500/month. She will be using the the car for work for 90% of the time, approx 10% personal use. Can she write down 90% of the cost of the lease in the tax return?? ...how does this all work? and is this the best way to fund a car?
many thanks for any advice
My wife is a dentist, self employed at present...she was thinking of leasing a car no more that 500/month. She will be using the the car for work for 90% of the time, approx 10% personal use. Can she write down 90% of the cost of the lease in the tax return?? ...how does this all work? and is this the best way to fund a car?
many thanks for any advice
It depends on the nature of the lease.
If it is a simple rental agreement, then, in theory, the monthly rental cost of the vehicle can be offset against the annual income. However, there will be restrictions on how much can be claimed.
Firstly, the monthly charge must be restricted by the proportion of the total cost of the car that exceeds £15,000. This is called the "Expensive Car Restriction".
Secondly, the resultant figure must be reduced by 10% to take into account the private useage proportion.
If the lease is a "Finance Lease" or a "Purchase Lease", then the only element of the monthly repayment that can be offset against the income of the business is the Finance Charge element of the repayment, not the full repayment. That must also be restricted by the "Expensive Car" element and the "Private Use" element.
In the case of Finance Leased Assets, accounting "Depreciation" is also allowed as a tax reduction. This is ususally calculated at 25% per annum (although other rates can be used). The same restrictions as outlined above should be applied to this cost too.
Depreciation is not usually allowed for tax purposes and is usually replaced by the Revenue's own Capital Allowance schemes. However, the exception is made for Finance Leased assets.
If it is a simple rental agreement, then, in theory, the monthly rental cost of the vehicle can be offset against the annual income. However, there will be restrictions on how much can be claimed.
Firstly, the monthly charge must be restricted by the proportion of the total cost of the car that exceeds £15,000. This is called the "Expensive Car Restriction".
Secondly, the resultant figure must be reduced by 10% to take into account the private useage proportion.
If the lease is a "Finance Lease" or a "Purchase Lease", then the only element of the monthly repayment that can be offset against the income of the business is the Finance Charge element of the repayment, not the full repayment. That must also be restricted by the "Expensive Car" element and the "Private Use" element.
In the case of Finance Leased Assets, accounting "Depreciation" is also allowed as a tax reduction. This is ususally calculated at 25% per annum (although other rates can be used). The same restrictions as outlined above should be applied to this cost too.
Depreciation is not usually allowed for tax purposes and is usually replaced by the Revenue's own Capital Allowance schemes. However, the exception is made for Finance Leased assets.
Eric Mc said:
Firstly, the monthly charge must be restricted by the proportion of the total cost of the car that exceeds £15,000. This is called the "Expensive Car Restriction".
.
Does that mean that anything under £15000 is ok, but anything above this amount is not?.. I am a bit confused!!.
The Expensive Car restriction is a fairly complicated formula.
Say you were finance leasing a car and the annual cost of leasing was £2,000 (this means the finance cost element of the lease, not the actual full repayments). And say, the retail price of the car was £30,000.
Then, you would not be able to claim the full £2,000 as a business cost.
You would have to apply the restriction as follows:
£2,000 x £15,000 + £30,000 x 1/60,000 = £1,500
Therefore, only £1,500 can be claimed, not £2,000.
In addition, the £1,500 should be reduced further by any non-business useage percentage.
So if you use the car 90% for business and 10% private, the actual claim will now come down to £1,350.
Say you were finance leasing a car and the annual cost of leasing was £2,000 (this means the finance cost element of the lease, not the actual full repayments). And say, the retail price of the car was £30,000.
Then, you would not be able to claim the full £2,000 as a business cost.
You would have to apply the restriction as follows:
£2,000 x £15,000 + £30,000 x 1/60,000 = £1,500
Therefore, only £1,500 can be claimed, not £2,000.
In addition, the £1,500 should be reduced further by any non-business useage percentage.
So if you use the car 90% for business and 10% private, the actual claim will now come down to £1,350.
Eric Mc said:
The Expensive Car restriction is a fairly complicated formula.
Say you were finance leasing a car and the annual cost of leasing was £2,000 (this means the finance cost element of the lease, not the actual full repayments). And say, the retail price of the car was £30,000.
Then, you would not be able to claim the full £2,000 as a business cost.
You would have to apply the restriction as follows:
£2,000 x £15,000 + £30,000 x 1/60,000 = £1,500
Therefore, only £1,500 can be claimed, not £2,000.
In addition, the £1,500 should be reduced further by any non-business useage percentage.
So if you use the car 90% for business and 10% private, the actual claim will now come down to £1,350.
Thanks for the advice Eric Mc. Using that formula, would I be riight in thinking that for a lease costing £6000 a year on say a £20,000 car would work out as:Say you were finance leasing a car and the annual cost of leasing was £2,000 (this means the finance cost element of the lease, not the actual full repayments). And say, the retail price of the car was £30,000.
Then, you would not be able to claim the full £2,000 as a business cost.
You would have to apply the restriction as follows:
£2,000 x £15,000 + £30,000 x 1/60,000 = £1,500
Therefore, only £1,500 can be claimed, not £2,000.
In addition, the £1,500 should be reduced further by any non-business useage percentage.
So if you use the car 90% for business and 10% private, the actual claim will now come down to £1,350.
6000 x 15,000 + 20000 x 1/60000 = £1494
so with 90% business use £1344.89 could be claimed.
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