Leasing a car or van through your business has its benefits when it comes to VAT. Your business can claim back 50% of the VAT on cars and 100% of the VAT on vans. Provided your van is solely used for business use.
The monthly costs of your contract hire made during the year can typically be fully offset against the business’s taxable profits for corporation tax purposes. Nevertheless, there are a certain number of issues and impending changes which should be taken into consideration, as follows.
Payments that are not fully tax deductible are;
The vehicle has CO2 emissions over 110g/km
The monthly payments aren’t equally spread over the duration of the lease, or the contract agreement has clauses that may permit the company to eventually own the car.
For cars that are leased by the business with a CO2 output of 110g/km or below, there will be no disallowance. Tax relief on the full car leasing costs can be set aside against taxable profits. This makes business contract hire a very tax efficient mechanism for leasing, especially electric and hybrid cars
Please note, that capital allowances cannot be claimed as well. These remain with the owner of the vehicle; in this situation the contract hire company.
As of April 1st, 2018, cars emitting 111 g/km or more of CO2 will be subject to a 15% tax disallowance on the amount of the rental that can be claimed against the company’s taxation. No more than 85% of the value of the car leasing costs meet the criteria for tax relief against corporation tax. This new limit replaces the 130g/km limit which has been in place for several years. Any present cars will not be impacted. (All figures correct as of 1st April 2019).
We have some useful guides that you may find helpful;
Employers can benefit from recommending company cars or vans in the following ways:
Offers a useful way of rewarding employees and recruiting new staff
Offers control over the care and dependability of the vehicle your employee’s drive
Offers that vehicles are accessible for use by more staff members, for example if an employee leaves, long term sickness etc.
Offers further opportunities of advertising the business
Employees can benefit from being given a company car or van by:
Using a vehicle without the financial risk or credit requirements undertaken (However they will need to pay for their benefit in kind taxes for private usage
Dependent on employee level and position you could drive a better car or van which otherwise you might not have considered before.
Maintenance Packages can be added to the car or van. This can be a cost-effective way in savings from “On the Road Exposure”. This ensures the car or van is covered for all routine servicing, repairs, and tyre replacement.
Prevent most of the obligations and issues that come with personally owning a car or van (Like the depreciation of the car or van, the work of selling the vehicle, Taxing the vehicle every year)
Company cars usually are contracted between two to four years, which gives you access to driving the latest vehicles and latest vehicle technologies on the market.
Car Lease Restrictions
Every organisation is unique, and some may have limits or constraints in place that prevent you from selecting the car you desire. Depending on what line of business you are in, this may be more significant to some people than to others. However, if you are a driver with strong preferences, you can end up dissatisfied with the make that your company chose.
Company Car Tax
Your salary, the cost of the car, the amount of carbon dioxide (CO2) it emits, and the amount of business car tax that you must pay all come into play. Your BIK tax rates may be high if you have a high income or drive a costly vehicle with high CO2 emissions.
Fuel Tax Benefit
You could need to pay fuel benefit tax if your company car package includes fuel. If your employer doesn't pay for this tax, you will be subject to the appropriate taxes. This is calculated by adding your BIK tax rate by the fixed annual fuel before finally multiplying by your tax margin.
Never Owning the vehicle
Remember the business never owns the vehicle whilst its under its contract agreement. The owner of the vehicle would be the finance company.
