If you are planning to lease a car for business-related purposes, there are a number of important things to bear in mind.
One thing you may not immediately consider – but is an essential point to think about – is the different elements of car tax that can apply to companies that choose to lease vehicles. Having a good understanding of the expenses associated with leasing a car can help you weigh up whether this is the best option for your business and gives you the information you need to work out a realistic budget.
If you are wondering about the tax implications for car leasing, you first need to understand the different options that are available to you.
Once you have evaluated your choices, you will be able to determine whether contract hire and leasing is the most effective solution for your circumstances.
Contract hire leases
When you enter into a contract hire lease, the car leasing company will calculate the anticipated value of the car at the end of the lease. This information, as well as profit for the leasing organisation and interest, will affect how much money you are expected to pay.
Of course, as these rates take into account the expected depreciation of the lease vehicle over time, you will have to ensure you comply with the obligations set out by the leasing company.
These can include not exceeding a specified mileage allowance or ensuring that the car is maintained to a very high standard. Failing to meet these obligations can result in further charges, so it is important to be aware of what you may be required to do.
Car leasing and taxes
Depending on the type and duration of your car lease, you may be subject to specific taxes.
For example, short-term leases of ten days or less may be impacted by an input tax restriction. This 50 per cent block would be in place if the leased car is designed to replace an ordinary company car for a period of less than ten days – but if the car is being leased for longer and will be used only for business purposes, this limitation does not apply.
You may also find that your tax obligations with regard to VAT may change depending on how the vehicle will be used. Organisations that lease cars for use by driving instructors, for example, may be able to claim back the VAT they have been charged.
Fulfilling your legal requirements
Any employer that provides car and fuel benefits – regardless of whether or not the car is a leased vehicle – must comply with specific legal and tax requirements as set out by HM Revenue and Customs.
Documents are available from the government body and online that can help you determine the cash equivalent value of these benefits. This can be affected by a number of factors, including the annual salary of the driver, pooled cars or vehicles that are used to accommodate a disability.
If you have any questions about the process or what you may owe, it is a wise idea to do your research and pose your queries upfront – this way, you will not be surprised by any p
art of the process at tax time.