Contract Car / Business Lease

[Deleted User]

Hi,

I have just taken on a new client (sole trader) who currently uses their own car for business as well as personal. I have recommended the 40p a mile rule but the client is now thinking about taking out a lease for a new car as the old one is on its way out.

If the car was used for business only then the rental could be charged to the P&L but because the car will also be used for personal, what are the implications to the P&L and the tax computation?

Any help would be great as I have not had this problem before.

Gem7321

As it's a sole trader you can just make a private apportionment, ie. if 50% is deemed to be personal then post 50% of the costs to drawings or disallow in the tax comp.

When you say lease for a new vehicle, do you mean a lease or do you mean hire/lease purchase? If it's a lease, and I assume an expensive car, I think you have to restrict the rental going through the P&L. (Someone please correct me if I'm wrong!). I'm sorry I don't know the calculation off the top of my head but I will be able to find it for you tomorrow.

Gem7321

Found it

http://www.hmrc.gov.uk/manuals/bimmanual/BIM47717.htm

[Deleted User]

I think my client was referring to a lease were they would pay say £350 a month for a fixed term but would get a new car every time a new plate came out.

So you are saying that if it is a 50 / 50 split then 50% to the P&L and 50% to drawings? Would this include all other costs such as insurance, road tax, fuel etc?

Dean

Everything you need to know is contained in Gem's link.

Gem7321

Exactly. Normally I post all of the costs to P&L, then do a journal to move 50% of the total (or whatever the private proportion is) to drawings after I've ensured with the client that the amount is reasonable.

Vonni

I am assuming that your client is not VAT registered as if you lease a motor vehicle, which has an element of private use, remember you can only reclaim 50% of the VAT.

V

qwerty

The above link detailing the rules for lease payments only applies to old leases (leases entered into before 6 April 2009).

From 6 April 2009, the lease payments will be restricted by disallowing 15% of the payments if the car has CO2 emissions exceeding 160g/km (before adjustments for any private use).

See http://www.hmrc.gov.uk/budget2009/bn65.pdf paragraph 9.

Gem7321

Thanks for that