Let DSG Van Contracts Help You Decide
Once you have decided on the type of van you want, the next big decision is how best to fund it. The various different finance packages can seem confusing and even when you have chosen the package that best suits your needs, finding the best deal can be time consuming.
At DSG Van Contracts we are committed to helping you do both, whether you are a private individual, sole trader or a fleet operator. Our team can offer you advice on the most tax efficient ways to finance your vehicle, we will provide you with the correct information so that you can make an informed decision. We always recommend that after discussing our offer you talk to your accounts they will know you and your business better and will assist you in your final decision.
The following is a summary of each of the finance package we offer, this will help you decide which is the best method for you, however, we believe a conversation about you and your situation is better than a page of text, so call us on 08707 875418 or email sales@dsgvans.com.
- A Purchase agreement is where the customer has the right to obtain legal title to the vehicle. (Supply of Goods)
- A Hire agreement is where the customer has no option to gain legal title to the goods. (Supply of Services)
The following will give you a brief explanation of the different funding options we offer. We recommend that before you make your final selection that you discuss the matter with your accountant to ensure that you are selecting the correct package for your individual needs. At the end of this section we have prepared a quick reference matrix tocompare the different funding options.
- Contract Hire (Hire Agreement)
- Finance Lease (Hire agreement)
- Hire Purchase (Purchase agreement)
- Summary Table -Finance Options
Contract Hire (Hire Agreement)
Contract Hire is simply a method of hiring motor vehicles for use over an agreed time and mileage without ownership, the monthly rental is fixed (often referred to as an Operating Lease). This can include a range of additional services such as servicing, maintenance, tyres and road fund licence. This method of funding is a popular choice for VAT Registered companies, with more than 40% choosing this method. The term of the contract can range from 24 to 60 months and usually upto 120,000 miles.
What are the Benefits?
- Off balance sheet funding
- Consistent and accurate budgeting
- Improved cash flow
- Fixed interest rates
- Fixed cost maintenance available
- Low initial outlay
- Minimum capital expenditure
- VAT Recoverable on monthly rentals (1)
- No depreciation risk - underwritten by finance company
- No disposal risk
- Reduced administration costs
- Rentals allowable against taxable income (2)
(1) You can only claim 50% of the VAT on the Finance element if you are using thevan for private use, 100% if it is business use only (e.g. Pool van). All the VAT is recoverable on the Maintenance element as this is a business expense.
(2) If the List price of your vehicle is more than £12,000.00 the amount that can be allowed against tax is reduced, if it is less 100% can be allowed, this is called the half excess rule, see example below:
Invoice Price + £12,000.00 / 2 x Invoice Price / 100 = % tax allowable
Finance Lease (Hire agreement)
A Finance Lease is a product for VAT registered companies who prefer a flexible rental agreement, the ownership stays with the finance company but you bear at least 90% of the residual risk or reward at the end of the agreement.
For your tax purposes, a finance lease is a contract where the van is hired, and there is no pre-planned opportunity to purchase thevan. The title of the goods, like contract hire, can never be passed onto your company. The agreement shows on the balance sheet as a leased asset with a corresponding liability.
There are two types of Finance Lease generally available to you. The first is a Residual Value Lease, this provides fixed monthly payments over the period of the contract followed by a 'balloon payment'. The second is a 'fully Amortised Lease', on this type of lease the monthly payments account for the entire value of the vehicle over the contract period.
What are the benefits?
- Improved cash flow
- Consistent and accurate budgeting
- Fixed interest rates
- Low initial outlay
- Minimum capital expenditure
- VAT Recoverable on monthly rentals (1 - As above)
- Reduced administration costs
- Rentals allowable against taxable income (2 - As above)
- Vehicles shown on the balance sheet
- Opportunity for a third party to buy the vehicle at the end of contract
Hire and Lease Purchase (Purchase agreement)
This is the traditional method of funding a new vehicle, it is a straight forward finance agreement where title passes to you when all payments have been made. The purchase VAT can not be reclaimed unless your vehicle is being used for 100% business use. After you have paid an initial payment (deposit), the balance of the purchase price, plus charges are repaid over a fixed period by fixed monthly payments. Unlike Hire Purchase, Lease Purchase has a balloon payment that is set to represent the anticipated value of the vehicle at the end of the term. With both of these agreements, the risk of resale value, repairs and maintenance lies with you.
What are the benefits?
- You gain ownership of the vehicle
- The vehicle appears on your balance sheet as an asset
- You claim the write down allowance
- No VAT on monthly payments
- Minimum capital expenditure
- VAT Can be recovered on purchase price if vehicle is used for business purposes only
- VAT Can be recovered on the running costs
The information provided is for guidance only. We recommend that you seek professional advice from your accountant and tax office before making a decision based on the information given.
Inland Revenue has a guide to personal and company taxation which will be helpful to you.
DSG Van Contracts accepts no legal liability for the information given as it has been provided for illustration only as is your responsibility to check the validity of this with the relevant authorities.
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