Business owner leases a car paid for through Ltd Co. Its a 'contract hire' scheme whereby the business will not own the car and is given back at end of rental period. I understand that the rentals are tax deductible but is the upfront deposit also tax deductible? (I also understand vat implications and benefit in kind charges if used by director personally so not looking for any guidance in this area)
Replies (5)
Please login or register to join the discussion.
I would say it is
As really the deposit is only a number of normal rental payments (normally 3 months) and is therefore a cost, rather than a returnable deposit.
Just a trick to get the payment down
In reality, by having an initial payment of 3 months, followed by say 35 lower months, the main payment is reduced.
This helps where employees are entitled to a maximum monthly amount.
Of course, you are paying more than that in reality.
Personally I have always expensed the initial payment in month 1, rather than running a prepayment for three years for each car.
Agree, but...
Sometimes the payment pattern may be 3 upfront plus 33 monthly payments which would mean you have a permanent prepayment of two months until months 35 and 36. So it depends on the contract.In reality, by having an initial payment of 3 months, followed by say 35 lower months, the main payment is reduced.
This helps where employees are entitled to a maximum monthly amount.
Of course, you are paying more than that in reality.
Personally I have always expensed the initial payment in month 1, rather than running a prepayment for three years for each car.
However I would only worry about this if it made a material difference.
Yes, the "deposit" is tax
Yes, the "deposit" is tax deductible.
It should be spread over the length of the contract.