finance lease through a company - benefits?
Discussion
Advantages - very few. Disadvantages - the sums equate fairly close to what would have happened if the car had been purchased.
The accounting rule for an asset acquired under are a finance lease is that the asset is treated as if it was being acquired by way of a loan - i.e. the asset is posted to the balance sheet as a fixed asset. Depreciation is claimed on the asset as an expense in the profit and loss account. The capital sum "borrowed" to "acquire" the asset is treated as a liability in the balance sheet. The payments to the lease company are split between the capital and finance charge element. The capital elelment is posted against the liability - thereby reducing it over time until the payments cease or the lease is terminated. The finance cost element of the payments is posted to the profit and loss account as a finance charge i.e. the cost of "borrowing" in respect of the "loan".
The Revenue follows this treatment very closely. Because in a lease situation the leasing company retains ownership of the asset, they will be claiming the Capital Allowances available on the asset. The lessor (i.e. your company) will therefore be unable to claim Capital Allowances on this asset. Instead, the Revenue will allow the Depreciation charge in the profit and loss account as a tax deductable cost. This is one of the very few occasions where "Depreciation" is allowed for tax purposes.
With cars there are going to be restrictions however. Any car costing over £12,000 is going to have the allowable depreciation charge reduced by a factor equating to how much the cost of the car exceeds £12,000.
In addition, if the business is a limited company and you are a director of the company, there is going to be a benefit in kind charge on the personal use of the vehicle. This is applied in exactly the same manner whether the car is owned or leased by the company. There will also be a Benefit in Kind on the private fuel paid for by the company.
There are new rules for Capital Allowance coming into effect next April. However, not much has been revealed about these new rules yet but I am sure whatever the rules are relating to cars, they will not disadvantage the Revenue compared to the current rules.
The accounting rule for an asset acquired under are a finance lease is that the asset is treated as if it was being acquired by way of a loan - i.e. the asset is posted to the balance sheet as a fixed asset. Depreciation is claimed on the asset as an expense in the profit and loss account. The capital sum "borrowed" to "acquire" the asset is treated as a liability in the balance sheet. The payments to the lease company are split between the capital and finance charge element. The capital elelment is posted against the liability - thereby reducing it over time until the payments cease or the lease is terminated. The finance cost element of the payments is posted to the profit and loss account as a finance charge i.e. the cost of "borrowing" in respect of the "loan".
The Revenue follows this treatment very closely. Because in a lease situation the leasing company retains ownership of the asset, they will be claiming the Capital Allowances available on the asset. The lessor (i.e. your company) will therefore be unable to claim Capital Allowances on this asset. Instead, the Revenue will allow the Depreciation charge in the profit and loss account as a tax deductable cost. This is one of the very few occasions where "Depreciation" is allowed for tax purposes.
With cars there are going to be restrictions however. Any car costing over £12,000 is going to have the allowable depreciation charge reduced by a factor equating to how much the cost of the car exceeds £12,000.
In addition, if the business is a limited company and you are a director of the company, there is going to be a benefit in kind charge on the personal use of the vehicle. This is applied in exactly the same manner whether the car is owned or leased by the company. There will also be a Benefit in Kind on the private fuel paid for by the company.
There are new rules for Capital Allowance coming into effect next April. However, not much has been revealed about these new rules yet but I am sure whatever the rules are relating to cars, they will not disadvantage the Revenue compared to the current rules.
Edited by Eric Mc on Wednesday 5th September 21:51
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