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Finance FAQ
| Incl VAT and Business Tax Implications explained |
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| Finding the right solution for your business needs |
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With competition increasing in almost every business sector, it has never been more important for you to find the right vehicle for your needs and the best method of funding it.
At Redwood we appreciate that cash flow is the heartbeat of most business today and we have a range of finance solutions, supplied through a broad variety of Finance organistations, to match your exact business requirements.
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You can choose from:- Contract Hire
- Lease/Finance lease
- Lease Purchase
- Personal Contract Purchase / Contract Purchase
- Hire Purchase
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| Contract Hire:How does it work? |
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A Financial Company can recover VAT on your vehicle resulting in lower rentals for our customers. Contract Hire is designed for business requiring fixed monthly rentals and no risk of depreciation .The rental charged can include a wide range of additional options leaving you free to concentrate on running your business.
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The key features are: - Low initial outlay - usually 3 or 6 months advance rental.
- Fixed monthly rentals for the full contract period based on a set annual mileage, which you determine (Although this can be adjusted by arrangement.)
- Contract periods of 1 to 5 years.
- Road Fund Licence generally incl..
- At the end of the contract, provided the terms of the agreement are fulfilled, the vehicle is simply returned to the supplier.
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| Additional Benefits |
- Fixed budget payments.
- No disposal worries or depreciation risk
- This form of funding is "off the balance sheet" - Improving your gearing ratio (the return on assets employed within your business).
- Rentals can be offset against taxable profits for maximum tax efficiency*
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| Lease:How does it work? |
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Finance companies can recover VAT on the vehicle, leasing provides attractive lower rentals for customers. With a finance lease the customer carries the risk of depreciation and at the end of the lease recieves the sales proceeds as a rebate of rentals (after settlement of all sums due).
Monthly rentals can be reduced by agreeing an anticipated future value on the vehicle known as a balloon rental, to be paid at the end of the agreement from vehicle sale proceeds in most cases.
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The key features are:- Low initial outlay - usually 3 or 6 months rental in advance
- Pre-determined fixed monthly rentals, depending on the agreed contract period (usually between 12 and 48 months).
- You simply pay the final rental equal to the anticipated future value if the vehicle at the end of the agreement, if this option is chosen.
Additional Benefits:- The rentals are allowable against tax reducing your tax liability
- Ability to tailor the final rental to suit your budget
- VAT on rentals in recoverable
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| Hire Purchase |
The traditional method of purchasing a vehicle for business where ownership is priority.
Key Features- After paying an inital deposit, the balance is repaid by fixed monthly payments, which do not attract VAT.
- Agreements are available for periods between 1 to 4 years and when all the payments have been made, the vehicle belongs to you. The vehicle is classified as an asset, enabling you to offset writing down allowances against taxable profits, along with the interest charges.
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| Lease Purchase |
Combining the traiditional ownership benefits of hire purchase with the favourable cash flow advantages of leasing.
Key Features- Lower initial outlay compared with cash or hire purchase - reducing the drain on your cash flow. Traditionally 3 or 6 payments in advance.
- You can incorporate a final lump sum payment at the end of the agreement determined by the total mileage you'll cover - which simply reduces the monthly cost during the contract.
- At the end of the agreement you can make the final lump sum payment and keep the vehicle or part exchange it, using any equity towards the deposit for your next vehicle.
- Lease purchase vehicles are treated as an asset and appear on your balance sheet: writing down allowances can be offset against taxable profits along with interest charges in exactly the same way as traditional Hire Purchase.
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| Personal Contract Purchase / Contract Purchase |
A facility offering ownership without the worries of having to maintain and repair vehicles. (Optional).
Key Features
Low initial outlay - usually 3 or 6 months advance payment which does not attract VAT. The contract is mileage based and generally invludes Road Fund License. A final payment is set by Redwood to reduce the monthly cost and on completion of the monthly payments you have a choice.- Purchase the vehicle at the guaranteed final payment - even if it is worth more than anticipated at the end of the contract.
- Return the car.
- Part-exchange the vehicle.
The only charge made if the car is handed back, will be for excess mileage and any misuse or abuse. The vehicle is treated as an asset and appears on your balance sheet and as with lease purchase, writing down allowance, interest charges and any mainetenance costs can be offset against taxable profits.
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| VAT and Business Tax Implications |
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| Contract Hire, Lease |
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Business Tax For cars emitting 160g/km CO2 or less, full tax relief is available for lease and contract hire rentals. Above 161g/km CO2 there is a flat rate restriction of 15% on the finance part of the rental. No restriction in relation to commercial vehicle rentals.
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| Hire Purchase, Lease Purchase, Personal and Contract Purchase |
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Tax relief for the depreciation of the vehicle is given by way of a capital allowance: For cars emitting 110g/km CO2 or less this allowance amounts to 100% first year, untill 2013. Cars emitting 111g/km - 160 g/km , CO2 will receive 20% writing down allowance on a reducing balance basis. Cars emitting 161 g/km CO2 or more will receive 10% writing down allowance on a reducing balance. Commercial Vehicles receive 20% writing down allowance on a reducing balance basis.
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| VAT |
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With Finance Lease and Contract Hire, Redwood Finance can claim VAT on the vehicle purchase, which means that the resulting vehicle rentals are reduced (since 1/08/95). You therfore benefit from lower rentals based on the VAT exclusive price.
You can recover VAT on the rentals but if there is any private use of the vehicle then VAT recovery will be restricted to 50% of the rental element although 100% of the VAT on the maintenance element is still reclaimable.
N.B for vans, end users can claim back 100% of the VAT on lease and contract hire rentals.
VAT is charged on the purchase price of the vehicle, as it would be in the case of outright purchase.
This VAT is recoverable only if there is no private use intended.
N.B It is fully recoverable for vans - providing business is registered for VAT. Redwood Vehicle Management Consultants Ltd. R/O Marlborough House, Wood View, High Halden Kent. Registered in England: 3461806. VAT : GB 680076828.Data Protection: Z5887913. Licenced Credit Broker: 441836. E&oe
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