If your company is VAT Registered, you can reclaim 50% of the VAT on the Finance Rental. This is set at 50% because HM Revenue & Customs (HMRC) considers that there will be some private use of the vehicle. If the car is used exclusively for business use, for example if it is a pool car that lives on site overnight, it may be possible to reclaim 100% of the VAT on the Finance Rental. If a customer has a Maintenance Contract, they can also reclaim 100% of the VAT on the Maintenance Element of the agreement. If the vehicle has Co2 emissions of 130 g/km or less, 100% of the Lease Rental can be offset against Corporation Tax. This will reduce to 110g/km or less from April 2018. If the vehicle has emissions of 131 g/km or more, 85% of the Lease Rental can be offset against Corporation Tax. Likewise, this will reduce to 111g/km or more from April 2018. If your company is not registered for VAT, a Business Contract Purchase (BCP) may be more suitable. For more information, see ‘Taxation and Business Contract Purchase’.

A Contract Purchase Agreement is treated by HM Revenue & Customs (HMRC) as a purchase, therefore the company uses the Writing Down Allowance of 18% for all vehicles emitting 96-130 g/km of Co2. This will reduce to 110g/km or less from April 2018. If the vehicle has Co2 emissions greater than 130 g/km their WDA reduces to 8%. Likewise, this will reduce to 111g/km or more from April 2018. Any vehicles emitting 75g/km or less can be written down by 100% in the first year using the First Year Allowance (FYA). This will reduce to 50g/km or less from April 2018. Business Contract Purchase payments for depreciation and interest are not subject to VAT, therefore Contract Purchase is appropriate for fleet users who are exempt or partially exempt for VAT purposes as the VAT on the rentals would not be fully recoverable. If your company is registered for VAT, Business Contract Hire may be a more suitable funding option. For more information, visit Taxation and Business Contract Hire.

From a Taxation point of view, a Finance Lease Agreement is treated in the same way as Business Contract Hire. If your company is VAT Registered, you can reclaim 50% of the VAT on the Finance Rental. This is set at 50% because HM Revenue & Customs (HMRC) considers that there will be some private use of the vehicle. If the car is used exclusively for business use, for example if it is a pool car that lives on site overnight, it may be possible to reclaim 100% of the VAT on the Finance Rental. If a customer has a Maintenance Contract, they can also reclaim 100% of the VAT on the Maintenance Element of the agreement. If the vehicle has Co2 emissions of 130 g/km or less, 100% of the Lease Rental can be offset against Corporation Tax. This will reduce to 110g/km or less from April 2018. If the vehicle has emissions of 131 g/km or more, 85% of the Lease Rental can be offset against Corporation Tax. Likewise, this will reduce to 111g/km or more from April 2018.

Commercial Vehicles can be allocated into either the AIA (Annual Investment Allowance) Pot, or the Plant and Machinery Pot. If they are allocated into the AIA, they qualify for 100% WDA (Writing Down Allowance) in the year of Acquisition. Currently a business has an AIA of £200,000 per annum. Any purchases over this amount will fall into the Plant and Machinery Pool (except cars that emit >130 g/km of Co2). The Plant and Machinery Pool is written down by 18% per annum on a reducing balance basis. Commercial Vehicles are generally used for business purposes; they tend to depreciate far more than 18% per annum. This means that when you dispose of a vehicle, it is worth more in the business’s accounts than it actually realizes. This shortfall used to be allowable against taxation in the year of disposal, being known as a ‘balancing allowance’. This tax relief is now delayed after disposal, with the shortfall continuing to be written down on a reducing balance basis by 18% per annum. This has an impact on a business’s tax position, and many businesses are now considering leasing commercial vehicles, where they can offset the entire rentals against taxation during the lease period (if the business is trading as a sole trader or partnership, this may be restricted to the element of business use of the vehicle, i.e. the private use element is disallowed).