Finance Options & FAQs

Van Finance Lease

• This facility provides the customer with the benefits of ownership with minimum deposit and maximum flexibility.
• Deposits are usually the equivalent of three rentals, but can be any amount whatsoever
• Repayment period of up to 60 months
• VAT is paid monthly, then claimed back quarterly (if VAT registered)
• Rentals are 100% allowable against taxable profits
• Facility can have a balloon profile, which defers a large payment to the end of the contract - thus reducing monthly rental and aiding cash flow
• Vehicle is usually sold or part-exchanged at end of contract
• No mileage restrictions
• Ideal for non-VAT registered business users looking for low initial deposit and maximum flexibility

Van Contract Hire                                    

• Comprehensive, fixed cost solution where use of your commercial vehicle is important, but without the responsibilities of ownership. Essentially an operating lease with full maintenance package. Mileage sensitive - be careful!
• Deposits are anything from 3 rentals upwards
• Total budgetary control - fixed costs, as long as you stay within the mileage
• Monthly repayments are subject to VAT - VAT recoverable
• Rentals are 100% allowable against taxable profits
• Fixed maintenance package to include services, repairs, tyres, dependant on contract type
• At the end of the contract, simply hand the vehicle back
• At the end of the contract period the vehicle is subject to an inspection, where any reconditioning costs are charged to the customer
• Ideal for VAT registered larger fleet operators

Van Hire Purchase

If ownership is a priority then this is a cost-effective route to purchasing your vehicle.

* Low Deposit - VAT only                                     
* Flexible repayment period - up to 60 months
* Fixed monthly repayment aids budgetary control and cashflow
* Monthly repayments are VAT free
* VAT deposit reclaimable (VAT registered customers)
* 100% of interest charges can be offset against taxable profits
* Vehicle is an asset on your balance sheet and benefits from writing down allowances:-
o Year 1 - 50%
o Year 2 - 25%
o Year 3 - 25%, etc etc.
* Ownership of vehicle will pass when the agreement is completed
* Ideal for those who require ownership of the vehicle

Van Finance Leasing FAQs

Finance leasing is a long established vehicle financing method for business users. It can offer significant tax advantages and can benefit cash flow. Business Finance Leasing is not available to Private Individuals and is the preferred option due to significant tax advantages for Sole Traders, Self Employed, Partnerships & Limited Companies.

Once the leasing period of usually between one to five years is agreed, the business pays a deposit that can be as little as three months payments or as much as preferred. The choice is then made to spread the remaining balance over the remainder of the period or, more often to have a 'balloon rental' at the end of the term. This has the effect of keeping the monthly payments lower.

The amount of monthly payment is determined according to:

• The value of the new vehicle.
• The amount of initial deposit (variable to suit the business requirements).
• The length of the repayment period (1 to 5 years).
• The amount of the final (balloon) payment at the end of the period.
• The "balloon" payment can be set anywhere between 0% & 80% of the resale value of the vehicle based on the anticipated annual mileage. (Having a "balloon" final payment has the effect of reducing the monthly rentals).

Benefits of finance lease as agreed by accountants:

• 100% tax deductible. Reduce your costs and get back from the government between 18% & 40% of your total payments (including your deposit).
• Pay the VAT with your payments, not all up front at the start of the agreement.
• If VAT registered, claim it all back, and if not registered offset it against your tax.
• Fixed payments for the whole agreement.
• Low deposits and low monthly payments.
• No penalty charges for additional mileage or damage etc at the end of the agreement.

What happens at the end of the agreement?  You have a choice of options at the end of the agreement, which include keeping the vehicle for a low annual payment or the most popular option, part exchanging it back for a new one, using equity from your current vehicle as deposit for your next vehicle.

What are my options at the end of the lease?  You have several options [the first listed here is the most popular]:

• You can swap the vehicle in for another one. In this instance the vehicle clears its own balloon and you take the value left over to start your next lease.
• Sell the vehicle on behalf of the finance company and keep any profit made after clearing the finance company balance/interest.
• Spread the balloon payment over a further period.

Can I settle early?  Yes. But we do not recommend very early settlement. This is because you have not had time to build up any equity and may incur heavy financial penalties from the finance company.

Do I have any value in the vehicles?  Yes, just like a purchase agreement you build up equity in the vehicle through the period of the agreement, so that when you change your vehicle you have money to start off your next lease.

Do I have to have a balloon final payment?  No. You can request a full payout lease.

Would I be better off with an H.P. or even a Cash Purchase?  No. We recommend Finance Lease because:

• All payments, including deposit are tax deductible, which is always more tax efficient than claiming capital allowances available when cash or H.P. purchasing.
• You benefit from massive fleet discounts only available on Finance Lease.
• You gain from improved cash flow with VAT being spread over the whole of the agreement, rather than a large single payment paid with the deposit.
• No mileage or condition penalties.

Van Tax Explained

If you drive a company car, or if you own a business, being tax savvy could save you a considerable amount of money courtesy of Her Majesty's Government. This is because certain vehicles are not classed as cars at all, but as light commercial vehicles, and driving one could save you thousands of pounds in tax every single year.  Thanks to their combination of reliability, drivability, impressive styling and hard work/hard play ethic, vehicles like the Nissan NV200 and Ford Transit, for example, have developed a firm following in the UK. Yet despite their exceptional good looks these vehicles, even with accessories fitted, means that for BIK tax and VAT purposes every single model is classed as a light commercial vehicle (LCV).

Commercial Vehicle Tax Facts for Employees

Vans under 3.5 tons are classed as light commercial vehicles (LCV's), and all LCV's enjoy a standard Benefit in Kind liability irrespective of their purchase price or how many accessories you fit. This means that if you are a tax payer in the 40% tax bracket, driving a Mercedes Sprinter or Peugeot Bipper for example, you could save in the region of £4,000 every year on Benefit in Kind tax payments compared with a similarly priced passenger car.

• If you enjoy unrestricted private use of a van, in the tax year from April 2010 your BIK liability is £3,000 x your marginal tax rate, ie, a 20% tax payer will pay £600 per year whilst a 40% tax payer will pay £1,200 per year.
• If your employer provides your fuel for private use an additional BIK liability of £500 applies, which means the tax payable for a 20% tax payer is £100 per year and £200 per year for a 40% tax payer.
• Employees who use a commercial vehicle which is only available for business purposes, and remember this includes travel from their home to their normal place of work, have no BIK tax liability whatsoever.

Commercial Vehicle Tax Facts for Employers

As above vans, even if you fit accessories, under 3.5 tons are classed as light commercial vehicles (LCV's).

• If you provide your employees with an LCV instead of a passenger car, it is just like giving them a substantial instant pay rise, as driving a van could save them many thousands of pounds every year in BIK tax payments: for details of some comparisons see the table below.
• As with BIK, Class 1A National Insurance Contributions are considerably reduced on a Light Commercial Vehicle compared with a passenger car. If your employee enjoys unrestricted private use of any van, in the tax year from April 2010 Class 1A NIC is £384 (£3,000 x 12.8%) whereas Class 1A NIC on a Jeep Cherokee would be £1,078 (£8,426 x 12.8%).
• Light Commercial Vehicle's qualify for a VAT reclaim subject, obviously dependent on the business being VAT registered, the vehicle being used for business purposes and it being purchased outright or on a finance purchase plan. The percentage of VAT reclaimable is dependent upon the extent to which the vehicle is to be used for business purposes (ie, if the vehicle is used 50% for business purposes and 50% for private purposes then only 50% of the VAT can be recovered). The same ruling applies to fuel purchases.
• The VAT on Light Commercial Vehicle hire purchase plan rental agreements (i.e contract hire or leasing) is also fully reclaimable, subject to the points made above.
• Car tax (Vehicle Excise Duty) on all vans is at a standard rate of £200 per annum, irrespective of their CO2 emissions.

NB As tax liability can vary according to circumstances we would always suggest that you check with your accountant or tax advisor to see what allowances you are eligible to take advantage of.  

The table below compares the tax payable on a Mitsubishi L200 Animal Double Cab with equivalent vehicles with a similar retail price. Despite its sophisticated 4-wheel drive system, its upgraded engine and top-of-the-range specifications, such as leather seats and satellite navigation, this pickup truck shows a BIK and fuel benefit tax saving of up to £4,336.

* Business mileage may be reclaimable at up to HMRC approved rates.

† Based on 22% charge for Ford (19% plus 3% diesel surcharge), 30% charge for the Nissan (27% plus 3% diesel surcharge) and 35% charge for Jeep on £16,900 fuel BIK based figure. Fixed figures to increase by RPI each year.

Disclaimer

Any tax allowances detailed are subject to timing differences and the status of your business. As a result, you should check with your Accountant or Tax Adviser that you are eligible to take advantage of these allowances. Personal use of these vehicles may give rise to a tax assessment and we recommend you discuss this with your Accountant or Tax Adviser. Details were correct at time of publication. Tax information is provided as a guide only. Tax liability can vary according to circumstances. Please contact your local Inland Revenue office for further information.  You can contact The Inland Revenue Contact Centre on 0845 300 3939 or visit their web site at www.inlandrevenue.gov.uk.

If you are still confused please call us for a free Finance Consultation, to make sure you get the right vehicle that fits all your business needs best.