Leasing a car against tax
Discussion
Hello chaps,
I've recently gone self employed and this has got me thinking. What's the deal about leasing a car and claiming it against tax. How much can I get back?
Just checked out a few website, and one example that struck me was a new Boxster for £369 a month. Is it just a fantasy that I could claim all that back against tax, even if I'm not using a car for work?
Cheers for any replies.
L
I've recently gone self employed and this has got me thinking. What's the deal about leasing a car and claiming it against tax. How much can I get back?
Just checked out a few website, and one example that struck me was a new Boxster for £369 a month. Is it just a fantasy that I could claim all that back against tax, even if I'm not using a car for work?
Cheers for any replies.
L
The famous accountant's answer applies in this case - that depends.
The term "lease" is used very freely in the automotive trade. The type of tax relief available depends on the nature of the "lease". It's best to look at all the scenarios for vehicle ownership in a business:
Purchased outright (by cash, cheque etc):
The business can claim capital allowances on the cost of the vehicle. Allowances are restricted to a maximum of 25% of £12,000 per annum (irrespective of the actual cost of the vehicle). When the vehicle is disposed of, the proceeds of disposal are offset against the remaining written down value and a balancing allowance is claimed or a balancing charge is created depending on whether the disposal proceeds were less than or greater than the written down value.
The accountant will normally provide a Depreciation charge in the accounts for the vehicle but the Inland Revenue always disallow Depreciation as a cost and replace it with their own specific Capital Allowances (except for as explained below).
Purchased by means of a standard bank loan or a Hire Purchase agreement -
the tax situation is the same as above. In addition, the business will be able to claim the interest and finance charges element of the monthly repyaments as an expense in the profit and loss account. Note, this claim relates to the finance charge element of the repayments, not the full repayments themselves.
The acoountant will claim depreciation as explained above.
Acquired using a "Rental" type lease agreement (called an Operating Lease in the accounting world) -
The vehicle remains the property of the leasing company. Therefore it is the leasing company who will be claiming the capital allowances. The business cannot claim the balancing allowances as well. However, the business can claim the FULL value of the monthly rental payments as a cost in its accounts.
As the business does not own the asset, it will not appear in the Balance Sheet and no depreciation will be claimed.
Acquired under a "Lease Purchase" type agreement (called a Finance Lease in the accounting world) -
As for a Rental Lease, the leasing company will be claiming the Capital Allowances, not the business acquiring the vehicle. However, in this case, the vehicle will have been placed in the business' Balance Sheet and Depreciation will have been cjharged to the Ptrofit and Loss account. In this case and this case only, the Inland Revenue allows the business to claim the annual accounting depreciation as a cost in the accounts. The finance cost element of the monthly repayments (but not the full monthly repayamnts)can also be claimed.
All the above claims are subject to the £12,000 "Expensive Car" restrictions and also will normally be further restricted to take into account the private useage of the car.
Nobody said it was simple
The term "lease" is used very freely in the automotive trade. The type of tax relief available depends on the nature of the "lease". It's best to look at all the scenarios for vehicle ownership in a business:
Purchased outright (by cash, cheque etc):
The business can claim capital allowances on the cost of the vehicle. Allowances are restricted to a maximum of 25% of £12,000 per annum (irrespective of the actual cost of the vehicle). When the vehicle is disposed of, the proceeds of disposal are offset against the remaining written down value and a balancing allowance is claimed or a balancing charge is created depending on whether the disposal proceeds were less than or greater than the written down value.
The accountant will normally provide a Depreciation charge in the accounts for the vehicle but the Inland Revenue always disallow Depreciation as a cost and replace it with their own specific Capital Allowances (except for as explained below).
Purchased by means of a standard bank loan or a Hire Purchase agreement -
the tax situation is the same as above. In addition, the business will be able to claim the interest and finance charges element of the monthly repyaments as an expense in the profit and loss account. Note, this claim relates to the finance charge element of the repayments, not the full repayments themselves.
The acoountant will claim depreciation as explained above.
Acquired using a "Rental" type lease agreement (called an Operating Lease in the accounting world) -
The vehicle remains the property of the leasing company. Therefore it is the leasing company who will be claiming the capital allowances. The business cannot claim the balancing allowances as well. However, the business can claim the FULL value of the monthly rental payments as a cost in its accounts.
As the business does not own the asset, it will not appear in the Balance Sheet and no depreciation will be claimed.
Acquired under a "Lease Purchase" type agreement (called a Finance Lease in the accounting world) -
As for a Rental Lease, the leasing company will be claiming the Capital Allowances, not the business acquiring the vehicle. However, in this case, the vehicle will have been placed in the business' Balance Sheet and Depreciation will have been cjharged to the Ptrofit and Loss account. In this case and this case only, the Inland Revenue allows the business to claim the annual accounting depreciation as a cost in the accounts. The finance cost element of the monthly repayments (but not the full monthly repayamnts)can also be claimed.
All the above claims are subject to the £12,000 "Expensive Car" restrictions and also will normally be further restricted to take into account the private useage of the car.
Nobody said it was simple
There is another side as well. If your company owns the car you personally pay tax (P11D?) on the value of the vehicle and can only claim 10p per mile. If you own the car then there is no tax to pay and you can claim 40p per mile (upto 10k miles then it reduces to 20p per mile - I think). So speak to an accountant and see which option makes most financial sense for you.
Don't forget, that If a director of a company or an employee has access to a company car, then they are not really able to claim reimbursment of motor running costs on a pence per mile basis. The pence per mile scheme is aimed at directors and employees who use their own privatley owned cars in the course of their employment.
If a director or employee DOES have a company car and DOES claim motor expensers on a pence per mile basis as well, they will be TAXED IN FULL on every penny of the pence per mile claim.
If a director or employee DOES have a company car and DOES claim motor expensers on a pence per mile basis as well, they will be TAXED IN FULL on every penny of the pence per mile claim.
I understood that if it was a company provided car but without fuel paid by the company you could claim 10p per mile costs without being taxed. If all fuel is paid then and assumption of the value is made (by a table issued by the IRS) and you are taxed on that value unless you payback the company for personal mileage.
You are right on that score. For company cars, the allowable mileage claim would be restricted to 10p per mile for petrol cars of 1400cc or lower, 12p for petrol cars of 1401cc to 2000cc and 14p for petrol cars over 2000cc. There are slightly different rates for non petrol cars. In order for this scheme to be allowed, the employer MUST NOT provide ANY petrol at all for the employee.
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