Leasing for accountants, many of which are partnerships or LLP, is a productive route for vehicle procurement. Once the accountant we are leasing with understands the benefits, from a practical and tax perspective, it is very common for them to proceed with the arrangement being proposed. In some cases, the accountant will see how beneficial (and cost-effective) it can be and will go on to discuss this with their own clients who run businesses. For a small to medium enterprise, the leasing route can be a more cash-flow efficient (and certain) process.

Understanding the Tax Benefits of Car Leasing...

To understand some of the basic taxation principles involved with running a car through your business, you need to start at the beginning. Traditionally, many business would purchase a vehicle and rely on capital allowances as a way of tax reclamation. At present, a vehicle which emits between 0-50g/km of CO2 can claim 100% at the first year allowance whereas a vehicle emitting 51 -110g/km can claim 18% pool and a vehicle emitting 111g/km (and above) can claim 8% pool. With the exception of a commercial vehicle (which benefits from the Annual Investment Allowance), you cannot write-down a “standard vehicle” 100%. In contrast, for a vehicle emitting 0-110g/km for CO2, the company can claim 100% of the rentals against corporation tax with any vehicle emitting above 111g/km having the ability to reclaim 85%.

Introducing the IASB – IFRS 16 standards in January 2019

One of the bigger changes which is coming into effect as of 1 January 2019, is the IASB – IFRS 16 standards. From this date all current and future lease activity will become an “on balance sheet” type arrangement. Historically an operating lease would not appear on the balance, as an asset/liability, and so in looking at a set of accounts it would not be clear if the company operates company vehicles or not. Moving forwards this will change and companies are now going to have to report on the lease arrangements which they have EXCEPT items of an asset value less than 5000 euros OR items with a contract term of less than 12 months. For companies that monitor their gearing ratio (being the ratio of long-term debt to equity), this will present some further thought and consideration.

VAT & Car Leasing, Claiming & Calculating

The other matter which also arises on accounting for leases is VAT. If you are a VAT registered business, you are able to reclaim VAT which is payable on both the finance rental and the maintenance rental. The proportion of VAT you can reclaim will depend on your individual (and business) circumstances. For most motor vehicles (except pool vehicles), a business will reclaim 50% of the VAT on the finance rental and 100% of the Vat on the maintenance aspect of the rental. Some businesses will sensibly ask a broker or leasing company for an “effective rental” being the rental payable plus any VAT which cannot be reclaimed because this will be what the company effectively pays. In contrast, many companies will reclaim 100% of the VAT on the finance rentals for a commercial vehicle, so long as there no private use or “exempt” turnover.