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Tax Implications Lease or Buy ?

I work for a small Company and would be gratefull if anyone could explain the
advantages /disadvantages of leasing or buying a Company car from
the companies standpoint.
Steve Hearle

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Buy via loan more flexible than by leasing
I've seen a fair few clients become disatisfied with leasing, the problems can include :-

1) Unexpected excess mileage fees at end of the lease
2) Other extra charges re: alleged excess wear and tear of the vehicle
3) Difficulty with early terminating the lease (with loan or HP it's so easy - get settlement figure, pay it, sell the car - with a lease never quite so easy)

One other unsatisfactory contractual clause often seen (but not actually seen enforced) is something along the lines "if the finance company get reduced tax allowances during the period of the lease they can increase the level lease charges".

From a tax viewpoint :-

a) You pay VAT on the built in "interest" with leasing (no VAT on interest with with HP/loan arrangements)
b) What VAT is charged you usually only reclaim half of it with leasing
c) With a low CO2 car (<120g/km) you can currently get 100% FYA if you buy the vehicle outright or via loan/HP
d) With Capital Allowances (on a buy-on-loan/HP or outright car) you have flexibility re: claiming tax allowances - you can waive the allowances in a low profit year and claimed increased allowances in future years - a tax planning exercise unavailable with leasing.
e) If it's a low CO2 car there is NO restriction on the claim for tax relief on the leasing payments just because the car has a list price more than £12,000.

I recommend you get two comparative quotes in writing :-
i) Car bought via lease
ii) Car bought on loan / HP

Then having got firm financial figures form your own view from a commercial viewpoint.
Then, look at the tax angle - pass the figures to your accountant for advice on the tax relief (when / how much).

One possible commercial advantage sought with leasing is passing the depreciation risk to the finance company, but I often regard leasing as "fools gold" because of the disadvantages oultined.

Easy to fall for leasing, impossible to get out of once ensnared by signing the agreement.

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I half agree with Chris
It is a complex subject, but I think Chris has overstated the case in favour of leasing. You can only claim half the VAT on lease rentals and there is a permanent prorata disallowance of rentals where the cost is in excess of £12k. This may make outright purchase or hire purchase more attactive.

You need to work all the numbers.

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Lease or Buy?
Huge topic here Steve. Generally nowadays company cars are considered to be bad things (or at least expensive) for some of the following reasons (not exhaustive):
1. New Cars depreciate in value very quickly
2. You don't get FYA on cars
3. You (probably) can't reclaim the VAT on cars
4. Employees that are given them are taxed quite highly

Leases on the other hand usually cover all repairs and maintenance, are (almost) fully allowable against tax (there is a restriction for leased cars costing over £12,000) and you can reclaim the VAT so generally leasing is a better option.

There is of course the option of buying environmentally friendly cars. These are surprisingly tax efficient. Hybrid cars with low emissions (<120gkm 08/09) can have a benefit charge of 10% of the list price; the same car would also qualify (for now anyway) for 100% FYA too which is very attractive for companies. Of course still have the depreciation issue but who cares with 100% FYA.

Hope that helps.

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