Car contract hire for a partnership
Discussion
Hi guys.
I am a partner in a family run business and we are considering taking a business contract hire deal on a BMW 520d.
I am not 100% au fait with all the ins and outs of leasing so please, be gentle!
The car will be £295 + VAT per month and the contract is over 24 months (9 + 23) with an 8000 miles per year allowance.
The vehicle falls into the lower CO2 band.
I know that we can claim 50% of the VAT back but one thing I can’t really get my head around is the monthly payments being ‘offset against taxable profits’.
The car will be used 60% for personal use and 40% for business use (approximately).
Does this mean that we can claim 40% of the monthly rental (£129.80) as an expense?
Many thanks in advance!
I am a partner in a family run business and we are considering taking a business contract hire deal on a BMW 520d.
I am not 100% au fait with all the ins and outs of leasing so please, be gentle!
The car will be £295 + VAT per month and the contract is over 24 months (9 + 23) with an 8000 miles per year allowance.
The vehicle falls into the lower CO2 band.
I know that we can claim 50% of the VAT back but one thing I can’t really get my head around is the monthly payments being ‘offset against taxable profits’.
The car will be used 60% for personal use and 40% for business use (approximately).
Does this mean that we can claim 40% of the monthly rental (£129.80) as an expense?
Many thanks in advance!
The tax reliefs available when a car is leased are different to what happens if the vehicle is owned outright by the business or under finance through a bank loan or a Hire Purchase.
OPERATIONAL LEASE
If the hire contract is a "Rent" (Operational Lease), the business claims tax relief on the VAT Exclusive value of the monthly rental payments - and that is it.
For accountancy purposes, the vehicle is not capitalised in the balance sheet as a Fixed Asset and no depreciation is processed through the Profit and Loss account.
FINANCE LEASE
If the lease is a "Finance Lease", the business claims tax relief on the VAT Exclusive value of the FINANCE COST ELEMENT ONLY of the monthly lease payments.
The vehicle IS capitalised in the balance sheet and depreciation will be charged to the Profit and Loss account.
Normally, HMRC does not allow depreciation as a tax deductible charge in the accounts. Fixed Assets obtain tax relief through the Capital Allowance system. However, in the case of Finance Lease assets, because they are not eligible for Capital Allowances, HMRC WILL allow depreciation as a tax deductible cost as long as the depreciation charge is "reasonable" and normal for the class of asset.
Your accountant should put you straight on all these matters.
OPERATIONAL LEASE
If the hire contract is a "Rent" (Operational Lease), the business claims tax relief on the VAT Exclusive value of the monthly rental payments - and that is it.
For accountancy purposes, the vehicle is not capitalised in the balance sheet as a Fixed Asset and no depreciation is processed through the Profit and Loss account.
FINANCE LEASE
If the lease is a "Finance Lease", the business claims tax relief on the VAT Exclusive value of the FINANCE COST ELEMENT ONLY of the monthly lease payments.
The vehicle IS capitalised in the balance sheet and depreciation will be charged to the Profit and Loss account.
Normally, HMRC does not allow depreciation as a tax deductible charge in the accounts. Fixed Assets obtain tax relief through the Capital Allowance system. However, in the case of Finance Lease assets, because they are not eligible for Capital Allowances, HMRC WILL allow depreciation as a tax deductible cost as long as the depreciation charge is "reasonable" and normal for the class of asset.
Your accountant should put you straight on all these matters.
rfoster said:
In Eric's examples above - a contract hire is considered a form of 'operating lease' where you are simply hiring the vehicle for a set period of time. There's no eventual ownership and you don't bear any risk on the resale value of the vehicle.
Trying to work out exactly what type of hiring set-up you are getting involved in is not always easy.The (very) small and light grey print on the reverse side of the agreement often needs to be examined closely before you can decide exactly what you are looking at.
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