It’s the perpetual question: should a dental practice lease or buy its company cars? Is one option better than the other and is the principal at risk of missing out? In a word: yes – if they are not aware of the tax breaks available. Alongside the fuel economy and horsepower of the preferred make and model, they should also take a look at the amount of tax the practice can save.
One frequent question is does the principal have to pay more tax on their company car than an employee? The answer is no; this particular ‘benefit-in-kind’ is actually taxed based on a combination of the car’s ‘list price’ and carbon footprint.
Another area of uncertainty is what exactly the tax implications are of buying compared to leasing a company vehicle. Well, if a practice purchases a car, or signs up to a finance lease arrangement that concludes in ownership, it can claim for capital allowances (also known as CAs), which is essentially depreciation. CAs are made on a proportion of the list price of the car, which decreases in value every subsequent year. To illustrate, say a practice were to buy a new car for £30,000 and the rate of capital allowances was 8%. The tax deductions for the first year would be £2,400. This figure is the amount of value the car is deemed to have ‘lost’ after its first year, so is deducted from the list price the following year, valuing the vehicle at £27,600. The capital allowances for that year would be based on 8% of that reduced figure. And so it goes on every year.
A top tip for enjoying bigger capital allowances is to purchase a car with low CO2 emissions. Vehicles with emissions of less than 160g/km are eligible for the 18% rate of CAs, more than twice the example just mentioned above, and slashing the amount of time it will take to get to a complete tax deduction. To push for the full 100% CAs rate, simply find a car with ultra low CO2 emissions of 110g/km.
But what about practices that would rather rent their company vehicles? They can claim for 85% of the lease costs, so if these amounted to £3,000 in a given year the practices would receive £2,550 in tax deductions. Again, for practices that are keen to be more eco-friendly, cars with CO2 emissions under 160g/km are entitled to a 100% tax break on the rental bill.
Over a long period of time, whether you choose to rent or to buy, the result will be much the same. The difference lies within the unique circumstances of the practice in question i.e. do you have the resources to make a full purchase up front? In which case, enjoy the savings made on rental costs and interest. If, however, conditions are more austere – very likely in the current economic climate – then a lease arrangement would release much needed funds to be used elsewhere.
For more information please visit www.lansdellrose.co.uk or call Lansdell & Rose on 020 7376 9333.