Is there a tax advantage to leasing?
I know I get to write off some of the value of my van each year against my tax bill, but what if I leased would the same apply to the payments?
Anyone on here do it?
Depends on the type of lease you want to take out.
Large businesses will view lease vehicles and equipment in a different light to sole traders. So the advantages they see in leasing can be vastly different to what you see. To them, leasing is all about having the equipment to do the job without them being shown as an asset or liability on their books. The benefit of this is that it portrays the image of the company in a better financial light to an investor. This is particularily true if the company is listed on the stock exchange. To them, leasing is also all about using money that would normally be used to buy an asset to be used it other places, such as moving the business forward by growing it.
Whats the benefit to you tax wise as a sole trader. Simply; not very much.
But is can be a help as leasing has a lower initial outlay when acquiring a vehicle. A lease primary is funding a depreciating product, the finances houses charges for the privilege of the lease (interest charges) and a residual value at the end of the lease. They also set the residual at a level that they can also sell the used van they take back at a profit.
Contract hire is a lease where the finance house takes on the risk of the van and it future value at the end of the contract. You claim the payments against tax as an expense. Its known as an "off balance sheet" item on your books. You must insure it including GAP insurance, maintain it if you have a non maintenance contract and be responsible for the van's care. If you damage it over and above the "fair wear and tear" clause, or do more than the agreed mileage, you will be charged extra for that. So if you want to drill holes in your van to fit a water tank, then this maybe an additional charge levied against you on return of the vehicle at the end of the contract.
Usual intial payment is 3 payments up front followed by monthly payments for the duration of your lease. So 3/35 would be a typical lease agreement pattern + VAT.
At Citroen we also had Finance Lease which made you responsible for the final payment or residual value of the van. But not all companies could have a van on lower monthly rentals with a balloon payment at the end. If you were a builder then you have to pay the van off in full. What ever you got for the van at the end of the lease was the lessors, usually used for the initial payment on the next van.
This type of lease was known as an "on balance sheet" item. You claim the full payment as an expense along with any losses at the end of the contact as well. If you van is worth more than the final payment, then the balance is put toward the next contract on the next van.
You might give Grippa Tank a ring and see if they can suggest anything.
https://www.grippatank.co.uk/help/systemvehiclepackagefinance/People used to often think that they could have a lease where an HP deal would be rejected due to a poor credit history and CCJ's. Unfortunately the finances houses are stricter with lease than they are on HP. They initially have more to loose as the initial payment is lower.
If you go down the leasing route you have to be aware of all the implications. Beware of PCP with a large balloon payment at the end. It keeps your monthly payment affordable but can create financial issues for you later.
Please make sure of the ownership details. Some contracts are similar to HP and you can own the van when the lease is up, others you can't.
If you don't have a lease where you are responsible for the final payment, (usually Contract Hire) then you need to understand exactly what that finance house terms as fair wear and tear. Each finance house has a different interpretation and they usually supply of booklet if you request it.
Leasing doesn't always benefit the customer. Its primary objective was to fix you into a system on the pretense that you can easily have a new van every 3 or 4 years. But once you get locked into the system its harder to find your way out because of small initial deposits and large balloon payments. So the main beneficaries are the motor manufacturers.
If you need to get out of a contract before it finishes then you need to understand what the implications are. It can end up costing your dearly and even ruin your credit history.
If your contract is mileage based, then you need to make sure you don't go over that mileage agreement. Finance houses penalise for each mile you go over the agreed limit, but give nothing back for being under mileage.
With Contract Hire some finances houses will only accept you having the vehicle serviced at the main dealerships. There is of course the added advantage with contract hire for maintenance to be included with the package. It usually doesn't include tyres. So if you have a nail through the side wall, you are responsible to replace the tyre with the equivalent of the tyre that was damaged. Punctures are also not covered.
A lease vehicles have to be fully insured obviously and you will need GAP insurance as well. If the vehicle is written off in the first few months the value of the vehicle will always be less than the outstanding balance. If memory serves me you only 'broke even' well into the contract toward the end.
I'm not against leasing if you plan to replace your van on a regular basis. It doesn't matter how you finance a van, it depreciates at the same rate whether its on HP or Contract Hire.
Many people are against Contract Hire because they never own the vehicle. That argument doesn't really hold water because a van under HP doesn't belong to you until its fully paid off either - the finance house owns it.