Sole Trader purchasing vehicle for work. HP, Lease or bank loan best Tax option

phys

Hi All,

This is my first ever post so bear with me please. I'm a sole trader and looking at getting a new vehicle for work. I was wondering what the best option for me would be from a tax perspective, whether I should go Leasing, higher purchase or just get a car loan from the bank. Also, i must admit I not completely up to date on what the differences are between HP or leasing if anybody could give me some info please.

Thanks in advance:)

J.Ryan

Speak to your accountant, they know your circumstances best.

Do not reply on the advice of the sales person

nompere

phys wrote: »

Hi All,

This is my first ever post so bear with me please. I'm a sole trader and looking at getting a new vehicle for work. I was wondering what the best option for me would be from a tax perspective, whether I should go Leasing, higher purchase or just get a car loan from the bank. Also, i must admit I not completely up to date on what the differences are between HP or leasing if anybody could give me some info please.

Thanks in advance:)

There's rarely a significant difference over the life of the vehicle.

You get generally get more of the tax relief in the early years if you opt for a lease or hire purchase.

On the other hand interest rates on bank loans tend to be less than on a lease or hp.

You could spend untold hours on Excel - but I doubt you would gain very much. I reckon that the best bet is often that which requires the lowest cash outlay.

greendom

With a lease you will never own the vehicle

HP the vehicle will eventually be yours in effect from Hire to Purchase

Odats

Assuming your registered for VAT you will get the all the VAT back in your next VAT return either by taking paying cash via the bank loan or via hire purchase. If you lease the vehicle you claim the VAT back over the lease payments. So if you make 60 monthly payments there will be a VAT element to be claimed as an input credit each period i.e. over 30 VAT returns assuming bimonthly returns.
Generally most people choose either the hire purchase or loan option but speak to your accountant would be my advise as there's other variables to consider such as the interest rates per finance option,availability of loan finance from banks in this climate etc.

PS: VAT input credit claim is only relevant if you are purchasing a commercial vehicle which I assume it is.

greendom

Don't think you can claim for capital allowance with a lease but you can with the other 2 options

ari101

This is would make for a very complicated excel spreadsheeet! :-) (-> nompere)

There's no point considering the tax implications without considering the cost of finance. If you haven't already, get some basic quotes to work out the interest element for each option and take them to your accountant for advice.

You could find the decision being made based upon what you can get approval for in the current climate.

Sometimes the cheapest up front options are the best as all the calculations, claims and accounting issues are not worth the hassle.

However, effects on VAT claims/payments, capital allowances and even the timing of cashflows may be worth considering.