How business leasing benefits your company

By Fifty21 Media

21 Dec 2022

Website
Leasing A Business Vehicle

Leasing a business vehicle allows small and medium-sized enterprises (SMEs) to operate corporate vehicles with modest monthly payments and an agreed-upon mileage over the course of a contract period, which is often two, three, or four years long.

The fact that business vehicle leasing provides a significant number of tax advantages is one of the main factors contributing to its popularity. These advantages are frequently what persuade organisations to select business leasing over other accessible options.

WHAT ARE THE TAX ADVANTAGES OF LEASING A COMPANY VEHICLE?

There are several advantages to leasing a company vehicle, and the majority of these advantages apply whether you lease the vehicle through a Business Contract Lease or Business Contract Hire. These are the most typical types of commercial leasing, in which you hold a car or fleet of cars for a predetermined amount of time while making specified monthly payments. Subject to mileage and condition limitations, the cars are returned at the conclusion of your contract and there are no more fees due.

IT BENEFITS BUSINESS ACCOUNTS

The primary benefit of business leasing is that it is tax-efficient, which is beneficial for corporate accounts regardless of which broker or dealership you employ or which car you pick. The absence of a liability on the balance sheet is the primary reason for this.

The balance sheet of your firm is a crucial document since it is what other companies will use to determine whether or not to extend credit to your company.

It is important to consider how a large purchase, such as the acquisition of a piece of real estate or a vehicle for your company, would influence your balance sheet before making such a transaction. If you decide to buy a single car or a fleet of vehicles for your company, then this is something that will show up as a significant liability on your balance sheet. This is true regardless of the number of vehicles you decide to buy. If you took out a loan to purchase numerous automobiles, it would give the impression that you had borrowed a considerable amount of money and, as a result, that you had a sizeable financial sum secured against your company. As a result, it can make it more difficult for you to obtain further credit in the future.

On the other hand, if you acquire the car (or vehicles) through a Business Contract Hire arrangement, then it will not show up on the balance sheet of your firm as either a liability or an asset. Instead, it is referred to as being "off balance sheet." This is regarded as a significant benefit to the company since it implies that more credit lines may be obtained, and the cars will no longer be considered a liability.

YOU CAN OFFSET LEASING COSTS

If your firm is a limited company, you can deduct the monthly rent from your final Corporation Tax bill. If you operate as a sole trader or in a partnership, you can deduct the monthly rental payments from your taxable income.

Hence, it is possible to view commercial leasing as being particularly tax efficient.

The CO2 emissions of the vehicle or cars you are leasing will determine how much of the monthly fee you may offset. If the car produces more than 110g/km of CO2, you can get 85% of your money back. If it emits less than 110g/km, you can get 100% of your money back.

If you have a vehicle that you have rented, this is an exemption. If so, you are always eligible to get 100% of the monthly rental fee refunded, regardless of the vehicle's CO2 emissions.

Another benefit is that you are entitled to a 50% refund of the down deposit and monthly rent. This is because, in reality, you are renting the car rather than owning it.

Due to HMRC's assumption that you use the car for personal trips (including your commute to and from work) for the remaining 50% of the time, you may only claim 50% of your expenses back. However, there is one exception, and that is when the automobile is designated as a "pool car."

A vehicle that is used for business reasons, such as getting to and from meetings or training sessions, is known as a pool car. Additionally, a pool vehicle is kept overnight and on weekends on the business property. You can get 100% of your money back if your vehicle is a pool car.

HMRC will verify whether or not a vehicle is really kept on-site when it is not being used, therefore it's important to be truthful about its whereabouts. HRMC will find out if you utilise the car for personal tasks while claiming a full refund.

EXCESS MILEAGE AND MAINTENANCE AGREEMENTS ARE ABLE TO BE REIMBURSED

When you acquire a car through a Business Contract Lease, you will also have agreed upon a certain annual mileage allowance for that vehicle. You or your workers will be liable to an excess mileage fee if you drive more miles than what was originally agreed upon for the vehicle. You will have been informed of the charges before to signing your contract, and they can range anywhere from 1 penny per mile plus VAT to 1 pound per mile plus VAT. You will be responsible for paying these fees.

Many individuals choose larger mileage in order to avoid the chance of incurring additional fees, and this is at least in part why they do so. Nevertheless, this isn't always the wisest course of action.

Because the fee for extra miles is regarded to be a service charge, you are permitted to deduct the entire amount from your corporation tax liability. On top of that, if you file a VAT return, you can get the whole amount of the tax returned.

When something like this occurs, it is a good idea to consider leasing a car that has a smaller mileage and paying an additional fee for going over the allotted amount of miles. As long as you account for the additional miles in your budget, it may turn out to be a more tax-efficient option.

The HMRC will include this as a service charge even if you want to establish a maintenance agreement for your car or fleet of vehicles.

If you choose for a maintenance agreement, you'll pay an extra amount each month that will cover the whole cost of servicing for the term of your agreement. If you've rented a whole fleet of vehicles, this can be a great perk.

According to UK government regulations, if you have a maintenance agreement, you can deduct 100% of the VAT and Corporation Tax. No matter if you have a lease or a purchase agreement.

WHAT ARE THE TAX IMPLICATIONS OF BUSINESS LEASING?

Leases for businesses are attractive since they have few if any tax implications.

However, before deciding whether or not you wish to lease corporate vehicles through business leasing, there is one tax effect that you should unquestionably be made aware of.

YOU WILL HAVE TO PAY A HIGHER RATE OF NATIONAL INSURANCE

If you operate your business as a sole trader, are a director of a limited company, or are a partner in a partnership, then you will be required to pay a higher amount for national insurance.

This is owing to the fact that you are offering a benefit to your employees, and as a result, HMRC states that you are required to pay a higher amount of National Insurance Contributions for the benefit. This rise in National Insurance premiums applies to you regardless of whether or not your business provides you with any perks, so it is not just the case if you use a company vehicle.

The amount of National Insurance that you are responsible for paying is solely determined by the value of the vehicle.

The tax advantages of company leasing are substantial. These consist of:

  • There is no "on balance sheet" entry for the vehicle (or fleet of vehicles).
  • You are entitled to a full refund of the excess mileage cost and maintenance contract fees.

If you're in the market for a car or vehicles for your business and think these tax breaks would make a difference, leasing is a wonderful alternative to consider.

Latest news

1

Burnley aerospace firm eyes global growth with new CFO Rob Smith Of Velocity Composites

Burnley aerospace firm eyes global growth with new CFO

20 Jun 2024

2

PR agency wins third consecutive award for public sector work Viva Wins Third Public Sector Award

PR agency wins third consecutive award for public sector work

20 Jun 2024

3

Crowberry Consulting presents Society for the Environment Awards 240604-SocEnv-Awards-34.jpg.jpg

Crowberry Consulting presents Society for the Environment Awards

21 Jun 2024

4

Case study: RfM Transform and Peter Reed International HR Trends from RfM Transform (22)-min.png.png

Case study: RfM Transform and Peter Reed International

21 Jun 2024

5

Seeking accountants to drive change in Lancashire Chris Brown - Brown & Co

Seeking accountants to drive change in Lancashire

21 Jun 2024

Lbv116 Ltb Strip980
Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
11 Jun 2024 - 04 Dec 2024

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 16:30

Free 4 Week Growth Ignition Coaching Programme
UCLan Primary logo RKE.png.png
LBV Hub Seminars
19 Jun 2024 - 03 Jul 2024

Free 4 Week Growth Ignition Coaching Programme

Online, Preston, PR1 2HE

12:00 - 13:30

Yellow Day 2024 St Catherine's Park
YRD 2024_TV screen_V02.jpg.jpg
LBV Hub Fundraisers
23 Jun 2024

Yellow Day 2024 St Catherine's Park

St Catherine's Hospice, Preston, Lancashire

10:45 - 16:00

Chamber Breakfast Networking
Chamber Logo1.png.png
LBV Hub Networking
23 Jun 2024

Chamber Breakfast Networking

Whitewells Catering Supplies, Heysham, LA3 2XE

08:00 - 10:00

Adult Mental Health First Aid - Online Course
Youth MHFA.png.png
LBV Hub Seminars
25 Jun 2024

Adult Mental Health First Aid - Online Course

MS Teams, N/A, N/A

10:00 - 12:30

Business Networking in Blackburn - BNI Vista
EVENT LISTING SIZING Vista.png.png
LBV Hub Networking
25 Jun 2024

Business Networking in Blackburn - BNI Vista

Hampton by Hilton, 2 Frontier Ave, Blackburn, BB1 3AL

06:45 - 08:30

Business Networking in Chorley - BNI Endeavour
EVENT LISTING SIZING Endeavour.png.png
LBV Hub Networking
25 Jun 2024

Business Networking in Chorley - BNI Endeavour

Oak Royal, Bury Lane, Chorley, PR6 8SW

06:30 - 08:30

Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200px 4
Networking
26 Jun 2024

Lancashire Net Zero Carbon Conference

Ribby Hall Village, Preston, PR4 2PR

08:30 - 13:00

Business Networking in Accrington - BNI Zeus
EVENT LISTING SIZING Zeus.png.png
LBV Hub Networking
26 Jun 2024

Business Networking in Accrington - BNI Zeus

The Mill House, Corn Mill Yard, Accrington, BB5 5HX

06:45 - 08:30

Business Networking in Preston - BNI Diamond
EVENT LISTING BNI Diamond.png.png
LBV Hub Networking
26 Jun 2024

Business Networking in Preston - BNI Diamond

The Marriot Hotel, Garstang Road, Broughton, PR3 5JB

07:15 - 08:00

Business Networking in Lancaster - BNI Castle
EVENT LISTING BNI Castle.png.png
LBV Hub Networking
27 Jun 2024

Business Networking in Lancaster - BNI Castle

Vale of Lune RUFC, Powder House Lane, Lancaster, LA1 2TT

06:45 - 08:30

Business Networking in Burnley - BNI Kudos
EVENT LISTING BNI Kudos.png.png
LBV Hub Networking
27 Jun 2024

Business Networking in Burnley - BNI Kudos

Prairie Sports Village, Windemere Avenue, Burnley, BB10 2FU

06:45 - 08:30

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV116 Online Graphic
Subscribe now

Weekly news bulletin