purchasing car for business (hire purchase vs. cash purchase)

dru_g

hi, i own a business in partnership with my wife. (so we're self employed).
i want to buy a car, for business use,( its a 7 seater MPV). the car cost £9999.
i just wanna know what would save me more money (in terms of tax), a cash purchase or a hire purchase.

tnx

billywhizz

Contract hire. The rentals on a car costing that much would be 100% allowable against tax. HP or Buying will only allow you a 25% Writing Down Allowance each year(from what I remember - a bit rusty though).

Pennywise

billywhizz wrote:

Contract hire. The rentals on a car costing that much would be 100% allowable against tax. HP or Buying will only allow you a 25% Writing Down Allowance each year(from what I remember - a bit rusty though).

True, but contract hire would be more expensive, so you have to balance the quicker tax relief against the higher cost.

There is no difference in tax relief between buying in cash and buying on hire purchase, so again, you have to compare the interest costs of HP against the lost interest by using your cash reserves.

Don't forget, though, that you can only claim the business proportion, so if you do 50% business miles and 50% private, you can only claim 50% of the costs. It may well be better to buy the vehicle outside the business and just claim the IR authorised mileage rates for business travel - 40p per mile for the first 10,000 miles per year and 25p per mile thereafter - claiming the mileage does often work out more tax efficient than claiming the proportion of the actual costs.

JB2006

In recent years contract hire has become the favoured option by a lot of companies, the company I work for is one of them due to all the costs being deductible for tax. Also, it is worth looking at the difference between the contract hire costs each year and the cost of buying a car and the depreciation it loses each year. Ultimately, there may be very little cost difference between them.