How business leasing benefits your company

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.