Acquiring a commercial vehicle for a business whether it is a sole trader, partnership or limited company can help reduce your personal tax liability.
We recommend anyone in business to consult an accountant for specialist advice on which funding method is financially beneficial .
It is common for businesses to end the financial year having to pay a tax bill when they could have replaced their commercial vehicles with new ones instead.
The Annual Investment Allowance (AIA) is a form of tax relief for British businesses that is designated for the purchase of business equipment. The AIA allows a business to deduct the total amount of qualifying capital expenditure up to a certain limit from its taxable profits in a given tax year.
The annual Investment Allowance amount has been increased to £1,000,000 (one million) pounds per year between 1st January 2019 and 31st December 2020 for all sole traders, partnerships, and limited companies. Visit www.gov.uk/capital-allowances/annual-investment-allowance for more information.
The government has also set up a 130% super tax deduction for first-year capital allowance for qualifying plant and machinery assets and a 50% first-year allowance for qualifying special rate assets. From 1st April 2021 until March 31st, 2023, companies investing in qualifying new plant and machinery assets. Visit Super-deduction – GOV.UK (www.gov.uk)
You could choose to pay for a vehicle outright, take out a hire purchase agreement, or choose to lease a commercial vehicle all of which can have a number of financial, commercial, and tax advantages for business owners.
The ability to pay for a vehicle in monthly installments means that the cash flow of a business is not impacted in the same way as if a vehicle is purchased outright, freeing up money for other business expenses or investments. Funding a vehicle through hire purchase will show up as an asset on your balance sheet, whereas choosing contract hire to fund your vehicle will not show up as an asset on your business balance sheet.
Choosing the right method to fund your commercial vehicle can help your business still access funding resources from your other finance sources to help growth in other areas.
Commercially, having a new vehicle gives a much better impression of the business to its customers than one which is several years old. Also, the reliability of a newer vehicle is essential for the efficient running of a business.