Advice when buying a new van

Lifeisbutadream

We need to buy a new van for our business, but would really appreciate some help on the best way to go about it from a tax point of view..

We have decided to go brand new as road tax and fuel consumption will be more economical. Also we want to stick to our company colour (not standard) so need to order it

The van will be around £16K + VAT

We have around £5K to put down as a deposit.

Leasing seems to be the 'neatest' as we can put the entire monthly payment through the books (is that right?) - but what happens with the deposit?? Also if we lease for 4 years, can we just carry on putting the amount through, or do we only get three years??

If we buy the van on finance, how much of the amount can we put through the books at a time??

I am very confused - if anyone can help I will be extremely grateful!

Lifeisbutadream

Anyone?

Bean_Counter

I'll have a go, but not necessarily by area of expertise.

Accountants will all know about the tax and VAT restrictions on the leasing of a car. I have had a quick shufty through some of my tax books here and can not find any tax or VAT restrictions on the leasing of a van.

Hence I think that you can put the full lease amounts through the books as normal for as long as you have the van.

I also think that you can put the deposit through the books as an expense. I do not think that you can capitalise it as you do not own it.

If you buy the van on finance, I presume that you mean hire purchase. In that case you need to split the monthly repayments into capital and interest elements. The cost of the van is then debited onto the balance sheet and a credit for the HP liability amount created. For each repayment, the interest amount is written off in the books and the capital amount is debited to the HP liability account to reduce, so that account would go to nil as you made the last payment.

I hope that makes sense. Depending on the appropriate repayment amounts, leasing might be the best way to go as you get the tax benefit quicker. Why not check with your accountant.

Also assuming that there is no significant private use of the van, there will be no benefit in kind charge.

Lifeisbutadream

Bean_Counter wrote: »

I'll have a go, but not necessarily by area of expertise.

Accountants will all know about the tax and VAT restrictions on the leasing of a car. I have had a quick shufty through some of my tax books here and can not find any tax or VAT restrictions on the leasing of a van.

Hence I think that you can put the full lease amounts through the books as normal for as long as you have the van.

I also think that you can put the deposit through the books as an expense. I do not think that you can capitalise it as you do not own it.

If you buy the van on finance, I presume that you mean hire purchase. In that case you need to split the monthly repayments into capital and interest elements. The cost of the van is then debited onto the balance sheet and a credit for the HP liability amount created. For each repayment, the interest amount is written off in the books and the capital amount is debited to the HP liability account to reduce, so that account would go to nil as you made the last payment.

I hope that makes sense. Depending on the appropriate repayment amounts, leasing might be the best way to go as you get the tax benefit quicker. Why not check with your accountant.

Also assuming that there is no significant private use of the van, there will be no benefit in kind charge.

Thanks very much Bean Counter - I emailed my own accountant but he is quite slow to reply and we desperately need to decide what to do as OH's old van is scraping the floor now..

The above all makes sense apart from what do you mean by not being able to capitalise on the deposit for leasing?

Bean_Counter

Lifeisbutadream wrote: »

The above all makes sense apart from what do you mean by not being able to capitalise on the deposit for leasing?

When we get a leased van, we pay a deposit equal to 3 month payments. Hence it is not really capital in nature, just an up front payment of lease payment.

Is the case with your deposit? I guess not as £5K would be too high a figure to be advance rental.

Usually you can only capitalise something you own i.e. it is an asset to the business. With lease costs you never own the asset, so I do not see how you can capitalise the deposit payment.

Lifeisbutadream

The £5K would be so that the monthly payments were lower but if it was better for us tax-wise we could put a lower deposit?

Elaine_Wilson

I'm not sure what the current market for vans is but the tax treatment will probably make very little difference to your decision.

Assuming the van is used 100% for business then you will be able to claim the whole of the cost to the business over the period you own it. The question is really one of timing, as the tax relief may not be available in the same years as the actual expenditure.

Where the van is actually purchased it becomes a capital asset of the business. The capital cost will fall to be dealt with under the capital allowances regime and the interest paid on any financing would be claimed throughout the period of the loan. Something bought on hire purchase is treated the same as an outright purchase bought with a loan.

If the van is leased then, as Bean Counter says, it never belongs to the business so capital allowances are inappropriate. Generally relief is claimed for the payments in the year they are made.

I said generally as the exact nature of any odd amounts (such as a deposit) needs to be determined. For example, an agreement might provide for three months rental to be paid up front and then normal monthly rentals paid until three months before the end of the lease. Nothing would be paid for the last three months. Accounting priciples would require you to carry forward the deposit until the last three months of the lease so the relief would not be gained until then.

From a tax point of view it may be preferable to buy the van, either with a loan or on HP. This is because the Finance bill going through parliament now makes significant changes to the capital allowances system. Your business will have an Annual Investment Allowance (AIA) of £50,000. Expenditure on plant and machinery up to this figure will qualify for an allowance of 100% so you could get most of the tax relief in the first year. I haven't gone into the detailed workings of the provisions but the HMRC website would lead me to think that a van would come under these rules.

I still believe, on the size of the expenditure you are considering, that the most important thing is to get the best deal commercially. Only consider the tax position when you have the best deals on the two options (buying or leasing) to fine-tune the figures for the final decision.