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How should you finance your vehicles?

|  Posted 13th Apr 2016

 

 

Related content:



How to get liquid
in 2016



Releasing the
power in your business structure

 

How should you finance your vehicles?


 

Cars are a big subject!

We get a lot of questions from clients about cars:

"What car should I buy?"
"How should I buy my car?"
"Should I run it privately or on the business?"
"Can I buy a Ferrari?"

We find that many business owners favour outright ownership, however recent guidance has been that outright cash purchase ties up cash that would be better used to grow your business.

So the alternative is to look at ways to ‘buy now, pay later’.

Broadly the finance options are:

Finance options
............................................................................................................................................................

Hire Purchase



  

Finance Lease 



  

Contract Hire



The car is yours but you pay for it over say 3 years

Car belongs to the finance company but there is an option to purchase at the
end of the term
 
You simply hire the car and hand it back after say 3 years.
Slower tax deduction Faster tax deduction
 
Tax deduction for lease payments over the period of hire
 
No VAT claimable 50% of VAT claimable* 50% of VAT claimable*


*Provided there is some business use

 

For cars, often the most attractive option is finance lease or contract hire from a tax perspective, as the costs are tax deductible over the period of the lease.  HP or outright purchase is a lot slower – by way of example, a car costing £30,000 with moderately high emissions will take over 40 years to depreciate for tax purposes down to £1,000.

Also under finance lease or contract hire, you can reclaim half of the VAT on the lease payments, whereas normally no VAT can be reclaimed when a car is purchased outright or on HP.


Commercial vehicles

For commercial vehicles – when we say commercial vehicles we mean vans; but pickups will also qualify if they have at least a one tonne payload – where the Annual Investment Allowance is available (check with your accountant on this point), HP is good because the business receives a 100% first year tax deduction despite paying for the vehicle over several years.  You get all of the VAT back on commercial vehicles whichever method you choose.

However never let tax be the only factor – compare the deals and work out which is the best financially for your business.  You also need to be sure you can afford and can commit to the ongoing monthly payments every month over the next few years - financing a vehicle doesn't make the vehicle any less expensive!

If you'd like to discuss your options when it comes to financing vehicles, please don't hesitate to contact us -


Contact:
Gerry Surtees
E gerry@oldfieldaccountants.co.uk
02476 673 160

 
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