Van Leasing – beware the taxman
Finance Lease could be the perfect way to drive a new van – but businesses need to be mindful of misconceptions or they risk falling foul of the taxman according to Sam Bryan, Release & LCV Manager at UK lease firm Select Van Leasing.
Here he counters some of the myths about Finance Lease – an alternative finance product to traditional Contract Hire.
Finance Lease is an amazing product, particularly when it comes to vans. It allows for van modification and custom builds. It offers peace of mind when it comes to vehicle damage. And because you need to sell the van at the end of the contract, you could even find yourself in positive equity – which means more cash to put towards your next vehicle.
Yet it’s also easy to misunderstand Finance Lease – and doing so could see you being targeted by the taxman, which is clearly a scenario to be avoided at all costs.
Finance Lease is only available for business customers.
It also differs from Contract Hire in that there’s a large balloon payment at the end of the contract and the onus is on the business or sole trader to then sell the vehicle to a ‘disinterested 3rd party’ at fair market rates.
If you sell the van and it’s worth more than the balloon payment, those funds go straight into your pocket. If not, you need to make up the shortfall.
But be wary of taking ‘poor advice’ when it comes to selling the vehicle at the end of the agreement.
You need to sell the vehicle to a ‘disinterested third party’ at fair market rates. This point leads to one of the biggest misperceptions about Finance Lease. You can’t just pay off the balloon payment and own the vehicle. And that includes selling the vehicle to a mate at the end of the contract and it ultimately falling back into your possession.
Let’s say, for example, that you’re a business owner. You get yourself a nice pick-up on a Finance Lease. Throughout the contract, you claim back the VAT on all of the rentals you’ve paid, and you’ve also off-set the cost of those rentals against your pre-tax business profits. You can’t, as the owner of that business, then sell the pick-up to your wife, or brother, or Steve who works in the warehouse before ultimately taking ownership of it. You’ve already benefited from the VAT and tax savings throughout the life of that Finance Lease contract, you can’t then benefit again by keeping hold of it. You also have to sell it at a fair market rate.
Some so-called experts might tell you that you can sell the van to your mate down the pub. But from where we’re sitting, that’s really problematic – a huge risk. If the taxman catches up with you and realises what you’ve done, they’re going to have a problem with it.
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