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I am self employed and have toyed with the idea of leasing but am not vat registered. Apparently I could claim the whole leasing cost back but I am unclear as to wether or not it is a good idea or another of my pie in the sky schemes. Any advice?
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The big question is not just whether you are self-employed but whether you would use the car for business (and how much). Otherwise the amount you can claim back may be different (but I'm not an accountant).
If you can claim the tax back then you're getting back 22%/40% of the finance cost because leasing transforms the car from being a capital expense to an income one. Even if there is a financing cost, your capital isn't tied up so you can reinvest it elsewhere, if that's relevant to your business.
There is no single answer for everyone without an indepth exploration and you're better off discussing it with an accountant who knows your circumstances.
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My accountant leases his cars, but he can't afford to buy a car outright of they type he wants. His advice to people who have the cash available is to buy the car outright as its the cheapest way (unless there is a special manufacturer finance deal). it only applies if you want to buy a brand new car and get a new one every three years.
I'm self-employed and like cars, so leasing for me is no good as I would feel trapped by the deal. For others its great, as their costs are identified up front.
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There's nothing in law to stop you registering for VAT, though clearly it will raise your prices by 17.5%. If your customers are VAT regd then it makes no difference to them. If you only sell to consumers then it will, clearly.
I'm VAT regd, but rarely put VAT on an invoice as my customers are mostly in the US. Most of my VAT return are are for refunds, not payments.
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There's nothing in law to stop you registering for VAT, though clearly it will raise your prices by 17.5%.
Why will it raise his prices by 17.5%? If he is supplying materials in say the construction industry and 50% of his estimate/quotation is for materials he will have already included the v.a.t. element in his charges, therefore his £ uplift will surely be 8.75%
MD
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I am self employed and have toyed with the idea of leasing but am not vat registered.
Are your customers VAT reg Companies or Private Individuals
If your turnover is over £57K (from memory) you have to register, whether you want to or not.
If VAT REg you can claim back the VAT on a lease deal but then you will be charged Private Use ( Going to and from work is PU)
Alos if VAT Reg you can claim back the VAT on a VAT qualifying 2nd hand car, (Vat Qualifiers include Ex Rental Cars, Demonstrators, Driving School cars (if you must).
My son is VAT Reg but does very small Co mileage - therefore buys the car hoiimself and charges some mileage at then end of the month to his own Ltd Co (Sole employee)
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I'm self employed and have my own company which is VAT reg.
My acct says don't lease as the tax position is complicated. So I buy my own car with my own money. However when I use it for business I claim the mileage I do from the company at 40p a mile for the first 10K and 25p a mile thereafter. The company recharges all mileage to the client. What this means in plain english is
1) that at the end of every trading year I personally get a tax free payment of around 4K for mileage. I do under 10k business mileage. If I drive more I get more. This also reduces the profit of the company and the liability for corporation tax.
2) I use a flat rate VAT system so I can charge it at 17.5% to clients (including mileage) but I pay it at only 9% so I make a few thousand that way every year.
3) Acct allows the occasional 'motoring expense' to go through the books so company can pay for parking or speeding tickets
I recommend a good acct. Mine has my personal tax liability at zero, my pension growing rapidly, my company turning over 100k a year, I receive tax free dividends throughout the year to live off and pay a few thou corporation tax 10 months after the year in which I earn it. Get an accountant!
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I'm self-employed ( in a partnership with my wife)and VAT registered. We lease an Aygo as a 2nd car as it's a tax efficient way of having a car (my accountant says)
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i think if you are self employed and are a registered small company, owning a car is probably bad due to it beiong a depreciating asset on the 'books'.
However with leasing there is no 'free lunch' as someone is taking a margin somewhere.
My strategy is to buy cars outright which have low depreciation, look aftre them well and sell privately after 3 years as they won't have 'starship' mileage on them.
This does however involve a significant cash float, but alternatively there are a lot of very keen finance deals out there if you shop around, and if you're VAT registed you can claim back the VAT anyway.
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Worth noting that as a VAT registered company with a lease vehicle you can only claim back 50% of the VAT you pay on your monthly lease fee (ie 8.75%). However if you have a lease with servicing & maintenance included you get 100% of the VAT on the service and maintenance part of the payment (the lease co will split the payment on the invoices).
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>Why will it raise his prices by 17.5%? If he is supplying materials in say the construction industry and 50% of his estimate/quotation is for materials he will have already included the v.a.t. element in his charges, therefore his £ uplift will surely be 8.75%
I should have qualified that - his prices could go up by as as much as 17.5% - if all he is doing is supplying his time, with no bought in materials or services, then 17.5% will be the uplift. Could easily be the case if he's a consultant type.
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