January is a popular time of year for completing a tax returns and VAT. If you run a business and want to lease a new car, which is the best option for you; A Business or Personal lease?
One of the questions we do get asked quite frequently, is whether or not you should utilise personal contract hire or business contract hire… Find out more below!
One of the first things to note, is that there is no real difference between the two products as many of the “business only” deals have now faded away; there are only exceptional cases where a deal is bespoke to a business (sole trader, partnership or limited company).
When you are looking at using your business to contract hire a vehicle, do speak with your accountant as they will help you to understand some of the advantages – the monthly rentals are allowable against tax, up to 50% of the Vat on the finance rental is reclaimable, up to 100% of the VAT on the maintenance rental is reclaimable and, should the company be unable to pay for the vehicle, there would be no personal risk to the employee/director using the vehicle (subject to a gurantee). However, if you do use the company to fund your vehicles, as an employee you need to pay company car tax. This is a calculation based on a) the P11d of the vehicle; and b) the CO2 the vehicle emits.
Succinctly put, the more expensive and more polluting the vehicle is, the more tax you will pay (your personal tax band is also considered within this calculation).
The movement to electric, hybrid and PHEV vehicles has been mainly due to the increasing costs of company car tax, as the Government has consistently increased the level of tax you pay for running a company car.
As many of these cars offer very low CO2, this means that the employee pays considerably less tax and still benefits from a company car.
In the alternative, some employees/directors will now receive a car allowance or some form of contribution for their vehicle. This amount of money is subject to income tax.
In addition, you also need to consider that this sum is going to have to pay for the car/maintenance and tyres/insurance, so do take this into consideration when working out your budgets. The main advantage to going through personal contract hire rather than business is that you do not pay company car tax and on a luxury vehicle, this could offer you considerable savings.
Learn more about business and personal car leasing in our help and advice pages…