Q What are the tax benefits of business contract hire?

A

There are a few tax and VAT advantages when leasing a car through your business:

  • The monthly payment can be offset against taxable profits. How much depends on the CO2 emissions of your chosen car - if your car emits CO2 emissions of 110g/km or less, the full net monthly lease cost can be offset; if your car’s CO2 emissions exceed 110g/km 85% of the net monthly lease cost can be offset.

  • A car on contract hire is classed as "off balance sheet", which means it isn’t sitting on the books as a depreciating asset.

  • If your business is VAT registered you can reclaim 100% of the VAT on the monthly rental cost if the car is used exclusively for business. You can also reclaim 50% of the VAT if the car is also used personally and 100% of the VAT on a maintenance package, if you have added one to your contract hire agreement.

  • If you are self-employed as a sole trader, partner or an LLP member you won’t have to pay company car tax.

  • If your business is not VAT registered you’re still eligible for contract hire. You simply pay the VAT on the monthly rental cost.

 

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