We are often asked which is the best way to fund your new van and what is the most tax efficient way.
The truth is there is no perfect solution! Here is what you need to know in simple terms to make your own educated decision.
With a Business Lease or contract to hire you do not own the van it's rented, as such the monthly rentals can be offset against taxable profits in the year, they are paid. Your tax relief is spread over the contract term.
When you fund using Hire Purchase it’s the word purchase that’s the key. You're buying the van; if you are VAT registered, you can reclaim the VAT Immediately. Often customers don’t understand how they can claim back the VAT even though the van is finance and not yet paid for. The reason you can is the VAT on the purchase is paid up front, and the finance agreement is your VAT invoice. If you look hard enough you will always find the finance companies VAT no. on the agreement.
You can claim 100% tax relief against profits in the year of purchase or you can choose to depreciate the asset over the term. Up to a maximum of £200,000 of fixed assets per year. (Cars are excluded).
There is a good reason why you generally see Leasing advertised and not Hire Purchase and cash prices. What you seldom told is the manufacturers will often insist that dealers and brokers alike market their vans only using a monthly lease payment and never a headline discounted cost. It's often the case that the best discounts are only made available to use exclusively for Lease products. They do this because they don’t want to show what the discounted cost of the van is.
If a manufacturer had more vans than customers and needs to sell old stock, they could simply get their dealers to have a big sale. They may well discount a £25,000 van and sell it for £16,995 great deal yes! But imagine what that would do to the resale market value of the product. It is critical that the residual value remains high because that is what gives us the low monthly payments in the first place. When we market a lease, when we quote and on the finance agreement we are not legally required to show you the sale price of the van because or finance charges because it’s a rental agreement, not a purchase. You still get a great deal the residual value is protected, and everyone is happy, so that is why as a customer you are often directed towards a lease.
Most manufacturers prefer brokers to sell their vans on Lease products as the vehicle is sold on a monthly rental. The finance company is not legally required to show the discounted cost and APR. Therefore the cost of the vehicle is not clear. At Rapidvans we make our quotes clear showing the discount your receiving and final payment, so you know exactly what you’re paying.
Contract Hire
