HP, lease or contract hire
Discussion
Question for the accountants amongst us.
I will shortly be going self employed.
I develop property and in between projects do a bit of plumbing, plastering, tiling and what not.
Thing is, carrying about my materials and tools is destroying my car so I think I am going to get my self a little van.
What I want to know is what is the most tax efficicient way of financing the vehicle.
Lease purchase (I assume this is the same as a finance lease), HP or contract hire (is this an operating lease?)
Thanks in advance
Matt (a better tiler, plumber and plasterer than accountant)
I will shortly be going self employed.
I develop property and in between projects do a bit of plumbing, plastering, tiling and what not.
Thing is, carrying about my materials and tools is destroying my car so I think I am going to get my self a little van.
What I want to know is what is the most tax efficicient way of financing the vehicle.
Lease purchase (I assume this is the same as a finance lease), HP or contract hire (is this an operating lease?)
Thanks in advance
Matt (a better tiler, plumber and plasterer than accountant)
At the end of the day, the actual tax advantages obtainable are more or less the same no matter what the method used to acquire the vehicle. However, the timing of the claims will be different.
Purchase upfront for cash/bank - vehicle owned outright. Full Capital Allowances claimable
Purchase up front using a simple bank loan - vehicle owned outright, Full Capital Allowances claimable. Interest on the loan (note not the full repayments)claimable.
Hire Purchase - vehicle NOT owned outright. However, HMRC treat the situation as if it was, therefore, the buyer can claim full Capital Allowances and interest and HP costs on the HP repayments (not the FULL HP repayments)
Finance Lease/Contract Hire - vehicle NOT owned outright. This time HMRC allows the Lessor to claim full Capital Allowances.
The lessee claims ordinary Depreciation on the vehicle and interest and finance lease costs on the repayments (but not the FULL repayments). This is the only situation currently where the Revenue allow Depreciation as an allowable business cost.
Operating Lease/Rental - ownership of vehicle retained by Lessor who claims the Caspital Allowances. The Lessee claims the regular monthly Rental payments as a normal "Hire of Equipment" type expense in the Profit and Loss account.
The Revenue are reviewing their treatment of the various forms of HP/Lease Hire/Rental agreements and are likely to introduce a more consistent approach in the near future. It is likely that the HP approach will be adopted for all HPs and Finance Leases.
I expect the transition period might be quite complicated.
Purchase upfront for cash/bank - vehicle owned outright. Full Capital Allowances claimable
Purchase up front using a simple bank loan - vehicle owned outright, Full Capital Allowances claimable. Interest on the loan (note not the full repayments)claimable.
Hire Purchase - vehicle NOT owned outright. However, HMRC treat the situation as if it was, therefore, the buyer can claim full Capital Allowances and interest and HP costs on the HP repayments (not the FULL HP repayments)
Finance Lease/Contract Hire - vehicle NOT owned outright. This time HMRC allows the Lessor to claim full Capital Allowances.
The lessee claims ordinary Depreciation on the vehicle and interest and finance lease costs on the repayments (but not the FULL repayments). This is the only situation currently where the Revenue allow Depreciation as an allowable business cost.
Operating Lease/Rental - ownership of vehicle retained by Lessor who claims the Caspital Allowances. The Lessee claims the regular monthly Rental payments as a normal "Hire of Equipment" type expense in the Profit and Loss account.
The Revenue are reviewing their treatment of the various forms of HP/Lease Hire/Rental agreements and are likely to introduce a more consistent approach in the near future. It is likely that the HP approach will be adopted for all HPs and Finance Leases.
I expect the transition period might be quite complicated.
The terminiology can be very confusing.
The best thing to ascertain EXACTLY what type of agreement you are looking at is to peruse VERY CAREFULLY the tiny print on the reverse of the form.
It is not ALWAYS that easy to work out precisely what form of agrement uyou are lookinbg at.
Regarding simple "rental" agreements, they tend to have VAT charged on the regular monthly /quarterly payments and the lessor will provide the lessee with a VAT reclaim schedule in lieu of a series of monthly/quarterly invoices - if appropriate.
The best thing to ascertain EXACTLY what type of agreement you are looking at is to peruse VERY CAREFULLY the tiny print on the reverse of the form.
It is not ALWAYS that easy to work out precisely what form of agrement uyou are lookinbg at.
Regarding simple "rental" agreements, they tend to have VAT charged on the regular monthly /quarterly payments and the lessor will provide the lessee with a VAT reclaim schedule in lieu of a series of monthly/quarterly invoices - if appropriate.
Thanks guys.
All the salespeople I have spoken to have waxed lyrical of the benefits of leasing but as I thought by the end of the term after the vehicle has been disposed of all forms of finance work out roughly the same.
Part 2 (did I not mention that this was a 2 part question?)
VAT Registration.
My main activity will be buying, renovating and selling houses with bits of handyman stuff in between. I am not too fussed about having to charge VAT on the handyman stuff because there will not be a vast amount of it.
I will however be buying lots of materials and using a few other trades in the development who will charge me VAT. Can I register of VAT and claim the VAT back on these materials and services.
I do not however obviously want to have to charge (or be charged) VAT on the purchase and sale of houses.
All the salespeople I have spoken to have waxed lyrical of the benefits of leasing but as I thought by the end of the term after the vehicle has been disposed of all forms of finance work out roughly the same.
Part 2 (did I not mention that this was a 2 part question?)
VAT Registration.
My main activity will be buying, renovating and selling houses with bits of handyman stuff in between. I am not too fussed about having to charge VAT on the handyman stuff because there will not be a vast amount of it.
I will however be buying lots of materials and using a few other trades in the development who will charge me VAT. Can I register of VAT and claim the VAT back on these materials and services.
I do not however obviously want to have to charge (or be charged) VAT on the purchase and sale of houses.
Normal "home repair and maintenance" type work is chargeable to VAT in the normal way. A trader MUST register for VAT if his Sales/Turnover of VATable supplies exceeds the compulsory VAT registration threshold - currently £61,000 per annum.
He can voluntarilly register for VAT even if the turnover threshold has not been exceeded.
The purchase and sale of actual properties (i.e. land and buildings) is normally exempted from the VAT system so the sale proceeds on the sale of a plot of land or a house can normally be ignored when considering whether you are approaching the £61,000 threshold.
Normal VAT trading allows the trader to offset VAT charged on goods and services purchased (Input VAT) against VAT charged on goods and services sold (Output VAT).
If you are operating a business with mixed supplies (some VATable, some VAT exempt), then there may be restrictions on the VAT that you can claim back on your costs.
These restrictions come under the Partial Exemption rules and can be quite complicated.
I would strongly recommend that you look up the VAT rules on Land and Property Sales and on the Partial Exemption rules.
He can voluntarilly register for VAT even if the turnover threshold has not been exceeded.
The purchase and sale of actual properties (i.e. land and buildings) is normally exempted from the VAT system so the sale proceeds on the sale of a plot of land or a house can normally be ignored when considering whether you are approaching the £61,000 threshold.
Normal VAT trading allows the trader to offset VAT charged on goods and services purchased (Input VAT) against VAT charged on goods and services sold (Output VAT).
If you are operating a business with mixed supplies (some VATable, some VAT exempt), then there may be restrictions on the VAT that you can claim back on your costs.
These restrictions come under the Partial Exemption rules and can be quite complicated.
I would strongly recommend that you look up the VAT rules on Land and Property Sales and on the Partial Exemption rules.
No.
Obtain a VAT1 registration form from HMRC. Fill it in. Send it back.
Some of the questions asked are a bit oddly worded to the unitiated so you may need assistance when completing the form.
They are currently ststing an 8 week processing period, although they are usually much quicker than that.
Obtain a VAT1 registration form from HMRC. Fill it in. Send it back.
Some of the questions asked are a bit oddly worded to the unitiated so you may need assistance when completing the form.
They are currently ststing an 8 week processing period, although they are usually much quicker than that.
Just spoke to a very helpful chap at the revenue who assures me that I do need to be registered for VAT because the things I am selling (houses) will mean my turnover will exceed the threshold.
The first property that I sell as a business will be zero rated, thereafter excempt.
I can however reclaim all VAT on purchases.
Surely this loophole needs closing quick sharp?
The first property that I sell as a business will be zero rated, thereafter excempt.
I can however reclaim all VAT on purchases.
Surely this loophole needs closing quick sharp?
VAT Regulations on the Sale of Land and Buildings are horrendously complicated. Get PROPER VAT advice from a VAT expert. Any advice given by a VAT official verbally has NO LEGAL STANDING WHASOEVER and could not be relied on if you tried to explain to a VAT tribunal that you were following such advice.
Sales of NEW commercial buildings are Standard rated.
Sales of NEW residential properties are Zero Rated
All other property sales are Exempt.
If your nominally Standard Rated sales are not exceeding the £61,000 threshold - YOU DO NOT HAVE TO REGISTER for VAT.
Although Zero Rated sales and Exempt Sales are shown as Outputs when completing VAT returns, if they themselves are pushing you over the threshold YOU DO NOT HAVE TO REGISTER. You will have to notify the VAT authorities of the situation but they will normally grant the exemption from registration.
Sales of NEW commercial buildings are Standard rated.
Sales of NEW residential properties are Zero Rated
All other property sales are Exempt.
If your nominally Standard Rated sales are not exceeding the £61,000 threshold - YOU DO NOT HAVE TO REGISTER for VAT.
Although Zero Rated sales and Exempt Sales are shown as Outputs when completing VAT returns, if they themselves are pushing you over the threshold YOU DO NOT HAVE TO REGISTER. You will have to notify the VAT authorities of the situation but they will normally grant the exemption from registration.
Depends on whether you have bought the property or not.
If you are just refurbishing someone else's property, you would charge VAT on your work done and claim VAT back on your costs. Simple and straightforward.
If you were refurbishing a property you had purchased, then it depends on whether the eventual sale of the property was going to a a Standard Rated property sale, a Zero Rated property sale or an Exempt property sale.
In the case of Standard Rated and Zero Rated sales, you WOULD be able to reclaim the VAT on your costs. In the case of Exempt sales, you would not. The Input VAT claim is blocked or restricted.
As I said, read up on the intricacies of VAT on Land and Property transactions and on the ramifications of making substatntial Exempt supplies (i.e. the Partial Exemption rules).
Alternatively, seek specialist advice - and do not rely on advice received over the phone from a VAT official.
If you are just refurbishing someone else's property, you would charge VAT on your work done and claim VAT back on your costs. Simple and straightforward.
If you were refurbishing a property you had purchased, then it depends on whether the eventual sale of the property was going to a a Standard Rated property sale, a Zero Rated property sale or an Exempt property sale.
In the case of Standard Rated and Zero Rated sales, you WOULD be able to reclaim the VAT on your costs. In the case of Exempt sales, you would not. The Input VAT claim is blocked or restricted.
As I said, read up on the intricacies of VAT on Land and Property transactions and on the ramifications of making substatntial Exempt supplies (i.e. the Partial Exemption rules).
Alternatively, seek specialist advice - and do not rely on advice received over the phone from a VAT official.
[quote=B17NNS]All the salespeople I have spoken to have waxed lyrical of the benefits of leasing but as I thought by the end of the term after the vehicle has been disposed of all forms of finance work out roughly the same.
quote]
One of the main benefits on a finance lease is that yenou will not get hammered for recharge costs at the end of the agreement. Given the what you intent use the vehicle for I would not recommend contract hire/op lease.
The other advantage is cash flow in that you don't need to pay the vat up front. In essence you get the best of both worlds, cash flow and vat benefits of contract hire but as you retain most of the resale value you do not get hammered at the back end.
IMO a bank loan would be the only other option to consider.
quote]
One of the main benefits on a finance lease is that yenou will not get hammered for recharge costs at the end of the agreement. Given the what you intent use the vehicle for I would not recommend contract hire/op lease.
The other advantage is cash flow in that you don't need to pay the vat up front. In essence you get the best of both worlds, cash flow and vat benefits of contract hire but as you retain most of the resale value you do not get hammered at the back end.
IMO a bank loan would be the only other option to consider.
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