is it best to contract hire or personal contract hire?

[richies74]

Hi all,

Just looking to change my car, i have had a contract lease car with previous company. I have set up ltd company which i s not VAT registered as small at moment, and wondering whether it is better tax wise, costs etc to go for personal Contract hire over Contract hire. I know there are benefits for 50% of VAT back but i would have to set up VAT registration and then pay tax on company car. Is it more beneficial in my position to go for personal and not get taxed, although i would pay more on a monthly basis for car.

Basically looking for a 2.0 TDI VW Tiguan 4x4 189 co2 emmissions, based at £300 per month business and £352 per month personal.

Any help really appreciated!!

Thanks.

[barney1]

you are probably best looking at contract hire through the business for a couple of reasons:

firstly finance companies have additional financial support in place for businesses - this means the rental will be cheaper *this is because they do not want to undermine their retail dealers prices).

secondly - through the business the rental is 100% tax deductable - this will be important in the first few years as it should practically wipe out any business tax bill

whilst the business is young - it is likely that you won't be pulling a large salary out of it - therefore if your income through PAYE is modest - so will your exposure to Benefit in kind (co car tax) be.

look at a two year term - as in year three it is likely that the business will be profitable enough to draw a larger salary - therefore you will change the car before your personal tax bill starts to creep up.

when you do register for VAT - you can back date a VAT claim by up to three years. Therefore your car can be declared as a start up expense and you can recover 50% of all of the vat paid.

Business contract hire will also be a small deposit - so this will not mean a large draw of start up cash - which is better spent on marketing!

[richies74]

Barney,
Thanks for your response, really appreciated.
All sounds good to go for Business Contract hire. My only concern is the company has only just started trading (set up in aug 2007) so would i have to sign personal guarantee or would i have difficulty getting contract hire?

Thanks again for all your tips/advice.

[barney1]

if you use a good broker they will advise but normally the finance company will require some accounts, bank statements and possibly a business plan. They just want to see that the business or yourself will be good for the payments, no bad credit and also that you have planned for the future (business plan) so will have some idea of long term turnover.

It really depends on the finance company as to what level of paperwork they ask for. A good contract hire broker will be able to do this for you as they will know what finance house to approach.