Contract Hire - The Question Of Vat.

Contract Hire - The Question Of Vat.

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Business and personal prices for car leasing are very different - why is that the case? Why VAT matters in contract hire?

This life has nothing that is certain but death and taxes. Now death is surely inevitable, unless you've figured something out that has eluded the rest of us, but there is a little hope when it comes to taxes. They can not only be postponed, but avoided if you make sure you are making the right financial decisions for you or your company.

You may think you know how to do this, but if you're new to car leasing then you do need to know how the taxman here in the UK looks at it.

If you've bought a car for your VAT-registered business before you will have noticed that you couldn't claim back the VAT on the car. So cars are completely unlike your other business expenses, like the cost of input materials or operating costs, and are also not treated like your assets - whether short or long term assets. Doesn't seem fair, does it? Especially when the price of a new vehicle is a major cost - that 17.5% addition to the total cost of purchase makes a big difference to the price. You see, the Taxman, or Her Majesty's Revenue and Customs as he's known to his friends, simply doesn't believe you when you say you've bought the car for business purposes. He assumes that there will be private usage, and probably most of the usage will be private, so he insists on treating your business like it's an end consumer.

Though to be exact, there are some cases where this rule doesn't apply. If you happen to be buying the vehicle so you can drive people around the town and country as a professional taxi-driver, then that's accepted by the taxman as different and you can receive the VAT back. Similarly if you're buying the car so you can use it to be a driving instructor. More broadly, if you can demonstrate that the car is used exclusively for business purposes, then you can claim the VAT back. This means that the employee's employment contract states that any personal use of the car whatsoever risks dismissal, beyond being simply verbally told that it is forbidden. It's not impossible to do this, but HMRC has and continues to challenge business owners who try to reclaim VAT on a passenger car which they state is used purely for business purposes. This isn't simple and if you are a light sleeper who tends to worry, or maybe you just consider yourself the sensible type, I would suggest that you consult with your tax advisor.

Fortunately, it's a little less difficult if you're purchasing a van or truck that has an obvious business purpose, like a lorry or a white van. Then you can reclaim the VAT on acquisition.

But back to happier topics and why if you leave a car it may have tax benefits for you. When a business obtains a car through leasing, then it is allowed to claim back 50% of the VAT. Business car leasing is perhaps seen more as an ongoing operational expense for the business. The HMRC forces you to admit that there will be some private use for the vehicle and so, to prevent further argument, they allow for this by splitting the different in VAT with the business. Therefore the price excluding VAT is important for businesses looking at company car leasing, and so all websites quote both a 'business contract hire' price excluding VAT and a 'personal' price including VAT. So that's why, no matter what you thought you knew about VAT and businesses buying cars, car leasing deals quote prices both with and without VAT.

Another good thing is that the business can reclaim the VAT spent on the vehicle's repairs and maintenance, so long as the business pays for it and the vehicle has been used for business purposes.

VAT on petrol is a little more complicated to consider. There are several different options and the optimal route will depend on the level of total and personal usage. We suggest that you start, before getting advice, by looking at what HMRC has to say on their website.

The best place to go from here if you want to know more about this topic and you are wondering how best to finance your vehicle is www.financeacar.co.uk where you can see all the best current car finance deals for both business and personal car leasing in a very transparent way. You can compare with personal contract hire (and the best PCP car deals), hire purchase and car loans - in fact, the website offers details on any possible form of car financing.

About the Author:
An advanced new car finance website to visit if you're looking to finance a vehicle is http://www.financeacar.co.uk/car-leasing where you can see all the great car finance deals for both business and personal car leasing in a very transparent and neutral way. You can compare with personal contract hire (and the best PCP car deals), hire purchase and car loans - indeed, all possible kinds of car credit.



Article Originally Published On: http://www.articlesnatch.com


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