WHAT ARE THE VAT IMPLICATIONS?
For both schemes VAT at the current rate is charged on the deposit and rentals. Provided the user is VAT registered, 100% of VAT payable on the rental is reclaimable on commercial vehicles. If the car does cover private mileage then a maximum of 50% on the vehicle rental and 100% on the maintenance can be reclaimed.
With contract hire the vehicle is not shown as an asset of the company in the balance sheet and does not effect capital gearing.
With leasing the vehicle is classed as an asset of the company and is shown as such in the balance sheet.
Rentals may normally be off set against tax, 100% of the first £12,000 of the vehicle cost (commercial vehicles no limit). If the cars cost is over £12,000 a percentage of rental can still be off set against tax.
Potentially off set the 50% VAT that is not reclaimable because of private mileage as a revenue expense