Finance Lease v Tax? (moved from general discussion)

[chirpychippy]

Hello,

I find myself bewildered by the different lease hire/contract hire/ HP options out there.

Quite simply my van is knackered, so I need another one! What is the best route?
I'm a sole trader not vat registered.
Initially I looked at contract hire but felt a bit nervous about the possible hefty bill when returning should I damage it or someone else damages it, car parks etc etc.
So I toddled of to VW commercial enquiring about a transporter and was talked out of contract hire and into Finance lease "the one with the balloon payment".
I do like to own my stuff so this appealed coupled with not having to pay should I/someone else dent it scratch it etc, however I do appreciate it would affect the residual value at the end of the lease.

This evening Im trying to weigh up the pros and cons and not really understanding the Capital Allowance side of it all. I am right that under contract hire I can claim the total monthly cost, whereas under finance lease I cannot, something do to with one being an asset and the other being a debt, I would also have to pay a deposit, would this deposit be claimable under Capital Allowance??

Any help would be nice or I'll be walking to work soon

 

[chirpychippy]

Is this in the wrong section?


+++++++++++++++
Moderator's note
General Discussion is perhaps not the place for anything serious.
+++++++++++++++

 

[crystal ball]

I was in the same position last year, after much number crunching and many phone calls I went for contract hire, handing the van back after 3 years, monthly payment covers servicing tyres road tax, breakdown, gave me a trade in on my old van, I probably could have got a better deal if I had sold my van privately but did not want the hassle, fully claimable against income tax, used Low cost Vans who are brokers who find the van and lease for you, so far so good

 

[chirpychippy]

Thank you Crsytal Ball, I think it's fair to say "it's done my head in a bit" finance lease, contract lease, blah blah blah.
I think contract will be ok, I've had my van for for 7 years, I've hit a skip once and a dustbin "you'd be surprised how much damage a dustbin can do"
What van did you go for btw, I veering towards a Transit Custom!

 

[crystal ball]

Vivaro sportive, a/c, assisted hill start, cruise control, dab radio, bluetooth stuff etc, tbh I don't use most of it apart from the radio

 

[TonyW2]

May be worth asking your accountant .

 

[chirpychippy]

Yes, spoke to my accountant all is clear now, thank you one and all.

 

[vinn]

chirpychippy,
Perhaps you would extend the clarity to the people who attempted to assist you?

 

[chirpychippy]

Fair point.

Me:- Self employed not vat registered.

Finance lease and contract hire are similar in the respect that the monthly payment including the initial deposit can be fully offset against your tax liability.

With finance lease you don't actually own the asset until you have made "or not" the final balloon payment. "Or not" means you could trade your asset in and start a new lease.

Finance lease does have a negative though. If you buy a second hand van over a five year lease, when the balloon payment is due you could find the balloon payment is more costly than the residual value of the vehicle due to the length of the lease, equally if you lease the vehicle over a shorter lease period and return it bashed up and scratched, the residual value could be less than the outstanding balloon payment.

The van I looked at was a transporter T30 for £16000 inc vat and fees, it was a deposit of £2500 with 48 payments of £300 with a final balloon payment of £5000 odd. A bank loan should offer a more competitive Apr.

Contract hire you pay a deposit followed by monthly payments ranging from 2 years to 4-5 years.
You can include for maintenance but this increases the monthly payments etc, albeit the entire cost is allowable against your tax liability. With contract hire you can return the van and that's the end of it, although if you damage the vehicle you are liable for the repair costs. There is an element of wear and tear allowed with the hire but any scratch that you can fit your finger nail edge into will require a re-spray as will dents and any damage to alloy wheels and any damage to the interior.

Hire Purchase is less common, whereas as above you don't own the asset, with HP you do own the asset from day one, but as this isn't an option I am looking at I didn't discuss it further.

This is my understanding but it's all quite confusing

 

[vinn]

Thank you for that extensive and complete answer.

 

[chirpychippy]

Pleasure