THE new year has started, and that meant a VAT increase, rising to 20% from the current 17.5% rate on 04 January 2011.
As VAT is levied on car leases, how will this rise affect you and your business?
New year car leases
If you have already placed an order for a new business car lease, where the vehicle is to be delivered after 04 January, you are advised to check with your leasing company to find out whether there is to be any change as a result of the VAT increase.
For users of contract hire, the only real impact as a result of the change in VAT will be an increase in gross (VAT inclusive) monthly rentals, including any initial rental payable (usually three months). The net (ex-VAT) figure will remain unchanged.
For those businesses who have opted for a ‘purchase’ type agreement, such as contract purchase, PCP (Personal Contract Purchase) or hire purchase (HP), the monthly cost is based on the full purchase price of the vehicle, inclusive of VAT. So any changes to VAT will impact the amounts payable. Best advice is to speak to your leasing company for clarity on how much the rise will be if you have not done so already.
What happens to existing business car lease agreements?
If you have an existing contract hire or finance lease agreement, the monthly rentals will be subject to the increased rate of VAT. Therefore the gross (VAT inclusive) payment you make will increase where the invoice is generated post January 04, 2011.
For small business owners that have a PCP or contract purchase style of vehicle purchase agreement, there should be no impact on monthly payment, other than where there is a ‘service’ element within your payment for services such as vehicle maintenance and in some cases, road tax.
