Hire purchase or finance lease when purchasing a van?

[Rosco1112]

Hi everyone,
Hopefully someone can help me in making the right decision on the best tax efficient way to finance a van I will hopefully be purchasing soon.

I ha step options, either finance lease or hire purchase and from research the difference between them is a follows:

Hire Purchase

• Traditional form of vehicle financing
• You’ll receive a fixed interest rate for the loan duration.
• Regular fixed payments to suit your business needs.
• At the end of the agreement, assuming all payments (including the Purchase Fee) have been made, your business owns the vehicle.
• As owners of the vehicle, your business retains any profit from the sale of the vehicle.
• Writing down allowances may be available
• VAT deposit reclaimable (VAT registered customers)
• 100% of interest charges can be offset against taxable profits
• Ideal for those who require ownership of the vehicle

Finance Lease

• Minimal capital outlay – typically three monthly rentals but can be as low as one payment and maximum flexibility.
• Fixed repayments to assist cash flow and budgeting.
• An additional line of credit for your business.
• Reduce your regular rentals by choosing the Finance Lease with a ‘balloon’ option.
• Repayment period of up to 60 months
• VAT is paid monthly, then claimed back quarterly (if VAT registered)
• Rentals are 100% allowable against taxable profits
• Vehicle sold or part-exchanged at end of contract hirer benefits from up to 100% of sales proceeds (ex. VAT)
• Ideal for business users looking for low initial deposit and maximum flexibility
• No mileage clauses or penalties
• Interest rates tend to be lower

I am a small limited company not VAT registered could someone please tell me what my best option would be? I don't plan on selling or changing the vehicle later on, I plan to keep it for 10 years and tbh finance lease ATM looks better to me as the monthly payments are less but not sure if it's less tax efficient than hire purchase?

The van will be a large investment as it is £20,000

Any advice would be really appreciated

Kind regards

Ross

 

[StevensOnln1]

With hire purchase you own the van at the end, with a lease you don't and would have to purchase the van if you wanted to keep it as the end of the lease. Either way you can claim the whole cost you pay for the van against your profits which will reduce the tax you pay accordingly.

 

[NRLtd]

Either way you can claim the whole cost you pay for the van against your profits which will reduce the tax you pay accordingly.

That isn't the case, as the vehicle may be considered an asset meaning you can deduct interest charges and depreciation/capital allowances, not the actual payments you are making.

There is a good post here http://www.accountingweb.co.uk/blog...d-pitfalls/contract-hire-vs-hire-purchase-tax which might help, though it is a maybe a little off topic.

Also, keep in mind that whatever the agree is refereed to by name, the actual specifics of the agreement will define it's accounting and tax treatment. Might be something to run past your accountant.

 

[Scalloway]

If the vehicle is classed as an asset you can claim its cost against taxable profits either through AIA or Writing Down Allowance.