Products : Business User

Hire Purchase

The business user hires the vehicle for a fixed period during which time they repay, by instalments, the total cost of the car plus interest. At the end of the contract period, the customer pays a nominal "option to purchase" fee to obtain ownership of the vehicle.

For tax purposes, the business user is treated as the owner of the vehicle from the beginning of the agreement and so can claim "capital allowances"

 

Hire Purchase (with balloon)

As above

 

Finance Lease

The fundamental characteristic of a lease is that although the business user does not own the vehicle, they have most of the "risks and rewards" associated with ownership. They must show the vehicle on their balance sheet as a capital item.

On Light Commercial Vehicles (and passenger cars with an on the road cost of less than £12000) the total monthly rental is 100% allowable against pre-tax profit.

On passengers cars with an "on the road cost" of more than £12,000, the amount that can be charged against tax is reduced. This is worked out using the "half the excess" rule, which is based on:

Total Cost – ½ (Cost - £12000)
---------------------------------------     X 100 = % allowance
                   Cost

 

 

Example:

£20,000 – ½ (£20,000 - £12,000)
-----------------------------------------   X 100 = % allowance
                    Cost

£16,000
---------  X 100 = 80% allowable
£20,000

VAT is paid on the monthly rentals but where the vehicle is used for:

Vehicle Use	VAT Reclaimable
100% Business Use	100% of the VAT is reclaimable
Private and Business Use	50% of the VAT is reclaimable