Do you know the different benefits between leasing a car and a hire purchase?

One questions we often get asked is – What are the different benefits between my business leasing a car or getting it through hire purchase?

If it is important for you to own your car at the end of the agreement then using a HP agreement is a cost effective way of achieving this. However, you won’t actually own the vehicle until the final payment has been made. In terms of your accounts, the vehicle will be recognised as an asset and tax relief will be available in the form of capital allowances. Relief is also available on the interest charged.  This is charged at a fixed rate so you will know exactly what your payments are for the full term.  However, if you fall behind with the payments the vehicle may be repossessed.

If ownership is not important to you, the typically lower payments of leasing may be more attractive. These monthly payments can be offset against your taxable profits meaning less tax payable.  Assuming the vehicle has some private use 50% of VAT on payments is reclaimable. The vehicle is treated as an ‘off balance sheet item’ meaning a more positive effect on financial ratios. However, most agreements have restrictions on mileage, with extra charges if you breach these. You will also not be allowed to modify your car e.g. fit a tow bar without permission and may have to notify the finance company if going abroad. At the end of the agreement you will be expected to return the car in ‘good repair and condition.’

Your choice, therefore, will be dependent on what your long term intentions are with regards to ownership and use of the car.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

DID YOU FIND THIS USEFUL?

Share it with your network:  

Want more great content?
Sign up to our newsletter

Follow us

Tweets by @CHW-accounting

CHW-Accounting
@chw-accounting


Twitter: chw_accounting

WHAT'S THE NEWS?

Grab a biscuit and a brew and read our latest news.

18 November 2019

Leasing a car – how much VAT can you...

by

With a few exceptions, reclaiming VAT paid on the purchase of a car is notoriously difficult. By comparison though, the VAT position for leasing and similar contracts is more relaxed.


Read more >

11 November 2019

HMRC Enquiries – beware if you have a cash...

by

Even in this digital age some businesses remain heavily reliant on cash transactions. HMRC views these as high risk and as a result targets cash businesses with VAT enquiries, using special techniques to justify investigating them.


Read more >

6 November 2019

Did Making Tax Digital for VAT (MTDfV) pass its...

by

The first big deadline for MTDfV is history and whilst there was a fairly high failure rate, it was not as bad as originally feared.


Read more >

29 October 2019

Business property relief (BPR) don’t let it disappear

by

BPR shelters the value of your business from the HMRC. The trouble is though, when you retire from your unincorporated business, the relief disappears immediately. CHW explain how you can preserve it.


Read more >

22 October 2019

How to enhance tax and NI-free termination payments

by

New rules will apply to employment termination payments from 6 April 2020 meaning that some settlements will be subject to NI in addition to tax. With this in mind, CHW look at how you can you improve the tax and NI efficiency of a termination settlement.


Read more >

YOUR CHALLENGES

No matter what your challenge is, we’ve probably dealt with it before.



Need an Accountant?

Get in touch >


Need an Accountant?

Get in touch >


Tax issues?

Find out more >


Tax issues?

Find out more >


Trying to grow your business?

We can help >


Trying to grow your business?

We can help >


Managing cashflow?

We can help >


Managing cashflow?

We can help >


Starting a business?

We can help >


Starting a business?

We can help >


Looking for funding?

Need help with funding? >


Looking for funding?

Need help with funding? >


Buying or selling a business?

We can help >


Buying or selling a business?

We can help >


Adopt the cloud?

We can help >


Adopt the cloud?

We can help >


What else can we do for you?

We can help >


What else can we do for you?

We can help >
CONTACT US

Get in touch, no hard sell, just a brew, a biscuit and a chat.