The leasing of cars is a simple finance purchase package designed to be of benefit to the business user. In the eyes of the Revenue it is a hire agreement but these days the terms of the lease and the guarantee to return the customer between 100% and 95% of the vehicle's value following its sale make it an ownership plan in all but name.
Given that there are advantageous tax rules relating to leasing and that the customer has the control and benefit of the vehicle's value at the end of the lease it is not surprising that commercial vehicle dealers find it the most popular form of business finance.
What are the benefits?
There are a number of real benefits to leasing. Firstly, for all customers, whether or not they are VAT registered, there is a substantial cash flow advantage straight away. When paying cash, or on Hire Purchase, the Vat on the vehicle is due immediately. Obviously, the more expensive the van the bigger the burden - £2000 on a £10,000 van.
When a van is leased the VAT is due only on the deposit. Since the deposit can be as little as 10% of the vehicle value this initial VAT burden on a £10,000 van can be as low as just £200 - a cash flow advantage of £1800. Of course, VAT still has to be paid and is then levied on the monthly payments, spreading the burden over the length of the agreement. Also, should you subsequently register for VAT then this is fully reclaimable in the normal manner.
For the customer who is VAT registered this cash flow advantage lasts as long as it takes to complete the next VAT return, i.e., up to a maximum of 4 months.
Secondly, normal lease payments are tax deductible in full in the tax year in which they are made. This means a 40% taxpaying sole-trader will be able to claim 40% of this payment back against his tax bill. For this reason many accountants will advise their clients to lease wherever possible.
Lease or HP?
At Anchor Cars we are Licensed Credit Brokers for all forms of finance. If you have had Hire Purchase before and wish to do so again we will be pleased to work out some proposals for you - we are known to offer the best purchase package in the Country whatever the form of funding.
Can I upgrade or finish early?
Yes - all of the finance plans we offer can be settled early or upgraded with a new or newer van. Arranging this is as simple as telephoning us with an outline of your requirements and we will be able to advise you within 2 minutes.
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