When you purchase a leased car for your company, you’ll usually be asked to pick between either a business or personal leasing product. While both are kinds of contract car hire that work in a similar fashion, you will soon discover that business leasing is the cheaper choice. The reason for this is related to the different tax that is paid for each kind of hire option.
Business leasing, sometimes called business contract hire, allows an enterprise to have rental of a brand-new car and a payment plan of affordable monthly instalments. Legally binding agreements, business leases were created for companies seeking to rent vehicles over many years.
Companies considering business leasing will see that it is often far less expensive than leasing a vehicle personally. This is because value-added tax (VAT) is not part of each monthly instalment that they make.
Personal leasing deals are always advertised showing monthly payments that include tax. As a result, business leasing offers in comparison are less expensive.
The key difference between personal leasing (also known as personal contract hire or PCH) and business leasing (business contract hire or BCH) regards the name printed on the car hire agreement, the documents needed and the funds that are reclaimed when a lease contract ends.
In terms of costs per month, business leasing deals are cheaper than personal leasing, as consumers can reclaim 50 percent of VAT back. If they specifically state they wish maintenance to be added to an agreement, business customers can also find that the full amount of VAT paid can be claimed back.
Fuel costs can also be included as business expenses. Tax can be reclaimed for any money spent on mileage while a vehicle is used for business purposes.
If a vehicle is leased for business but is also used for personal travel by a company not registered on the Flat Rate Scheme, VAT can be reclaimed on fuel costs. Firms can either claim only for VAT on trips involving business or claim all VAT and separately pay for personal journeys. The final option is to not claim VAT, and this is often chosen by companies when business journeys add up to so few miles that fuel charges are higher than the VAT they can claim back, making it unequitable.
Tax implications can have a significant impact on business decisions. As a result, understanding how purchasing equipment or leasing company cars is affected by tax before entering agreements or buying items can be beneficial.
At Adaptive Accountancy, we are ready around the clock to serve our clients with the answers to urgent tax questions. Offering a comprehensive service, we can also be counted on to complete tax returns and ensure companies claim back all that is owed to them.
For expert advice on leasing company vehicles, or to discuss our services further, get in touch today.