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.
27 November 2019
HMRC recently published new guidance on the structures and buildings allowance (SBA) following changes to the rules. This includes important information about how to claim it.
11 November 2019
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.
6 November 2019
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.
29 October 2019
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.