Leasing a vehicle if not VAT registered
Discussion
My business is starting to make money. Eventually I will have to register for VAT but, as there is a high labour content in what I do, and my customers are all private (not VAT registered), I am reluctant to register before I absolutely have to. On the other hand, I could do with acquiring a new vehicle (probably a van although I would prefer something like a Chrysler Voyager). I've looked into leasing a vehicle but it seems that leasing companies require you to be VAT registered
Any advice?
TIA
Any advice?
TIA
The problem is when your customers aren't VAT registered. If you are a registered trader you will have to charge VAT on everything you do. That means, at any given rate, you will always be more expensive to a non-registered customer. There isn't a level playing field.
My solution - abolish the £56,000 compulsory turnover threshold, make ALL traders register for VAT and reduce the overall rate to 5% (and of course, get rid of Zero Rate and Exempt too).
My solution - abolish the £56,000 compulsory turnover threshold, make ALL traders register for VAT and reduce the overall rate to 5% (and of course, get rid of Zero Rate and Exempt too).
At the moment there is a distinction between operational leases whd finance leases. Operational leases are treated as simple rental arrangements, the lease repayments being posted to the Profit and Loss account as Rental type costs. Finance leases are treated as Capital Loans - the related asset being capitalised, the finance repayments being treated as loan repayments and only the loan costs (interest and finance charges) being posted directly to the profit and loss.
The proposed amendments to the accounting standards will reduce dramatically the number of leases which can be treated as pure rebtal arrangements.
The proposed amendments to the accounting standards will reduce dramatically the number of leases which can be treated as pure rebtal arrangements.
None of which answers the original question! 
I had a look here as currently contemplating whether I should change my car, and was looking at some form of contract hire. Problem being I am a private individual, therefore not VAT registered. Looks to me as if the option is a Personal Contract Purchase plan.
I have been contemplating a few prices on this. I currently have an Ipreza and ironically the prices don't look that much higher than the loan I have, and more importantly this way I get rid of the risk of serious maintenance bills. On the other hand at the end of the contract I end up with nothing, however currently it looks as if I will have a 5yr old Impreza with 125,000 miles on the clock which will probably be worth nothing anyway!
I had a look here as currently contemplating whether I should change my car, and was looking at some form of contract hire. Problem being I am a private individual, therefore not VAT registered. Looks to me as if the option is a Personal Contract Purchase plan.
I have been contemplating a few prices on this. I currently have an Ipreza and ironically the prices don't look that much higher than the loan I have, and more importantly this way I get rid of the risk of serious maintenance bills. On the other hand at the end of the contract I end up with nothing, however currently it looks as if I will have a 5yr old Impreza with 125,000 miles on the clock which will probably be worth nothing anyway!
Your original question wasn't very clear - I'm afraid.
Was it:
Should I be VAT registered?
or
Should I buy a car under leasing?
If you acquire a vehicle under an operating/rental leasing agreement AND you are VAT registered you can claim back 50% of the Input VAT on the leasing charge.
If you acquire a car under a Finance Lease arrangemet (which is broadly similar to a HP Agreement although there are legal and tax differences) there will be no VAT on the finance charges so there will be no VAT to claim back.
If you acquire a car under a HP agreement (or bank loan or outright purchase), although there is VAT on the full cost of the vehicle, you are prohibited under the VAT legislation (except in a very narrow band of circumstances) from claiming the Input VAT back. There is no VAT on HP repayments.
Registering for VAT is sometimes worthwhile even if you have not yet reached the compulsory turnover threshold for registration ie. £56,000.
For example, if you are contemplating large amounts of Capital Expenditure (Plant and Machinery, Computers, Office Equipment etc) it might be worth registering to get the VAT back on this expenditure. The purchase of a car, as mentioned above, is more complicated because of the near impossibility of getting VAT back on the cost of the car.
Also, if most of your customers are themselves VAT registered, then charging them VAT is no big deal as they will be able to reclaim this VAT. The problem is when you have a large proportion of non VAT registered customers who cannot claim back the VAT you would have to charge them.
Whether one form of finance is better than another is, in the end, down to the best deal you can get with the lender/finance house. VAT and tax matters rarely make a massive difference.
>> Edited by eric mc on Thursday 6th November 08:07
Was it:
Should I be VAT registered?
or
Should I buy a car under leasing?
If you acquire a vehicle under an operating/rental leasing agreement AND you are VAT registered you can claim back 50% of the Input VAT on the leasing charge.
If you acquire a car under a Finance Lease arrangemet (which is broadly similar to a HP Agreement although there are legal and tax differences) there will be no VAT on the finance charges so there will be no VAT to claim back.
If you acquire a car under a HP agreement (or bank loan or outright purchase), although there is VAT on the full cost of the vehicle, you are prohibited under the VAT legislation (except in a very narrow band of circumstances) from claiming the Input VAT back. There is no VAT on HP repayments.
Registering for VAT is sometimes worthwhile even if you have not yet reached the compulsory turnover threshold for registration ie. £56,000.
For example, if you are contemplating large amounts of Capital Expenditure (Plant and Machinery, Computers, Office Equipment etc) it might be worth registering to get the VAT back on this expenditure. The purchase of a car, as mentioned above, is more complicated because of the near impossibility of getting VAT back on the cost of the car.
Also, if most of your customers are themselves VAT registered, then charging them VAT is no big deal as they will be able to reclaim this VAT. The problem is when you have a large proportion of non VAT registered customers who cannot claim back the VAT you would have to charge them.
Whether one form of finance is better than another is, in the end, down to the best deal you can get with the lender/finance house. VAT and tax matters rarely make a massive difference.
>> Edited by eric mc on Thursday 6th November 08:07
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