The Hire Purchase Capital Allowances Act which came into force in the United Kingdom in 2021 regulates the way in which owners of hire purchase vehicles can use their retained value to pay for various expenses that are related to the vehicle.
These include expenses such as repair costs, vehicle taxes and excesses, but exclude those costs that are included in the value of the hire purchase. As a business owner, you have an interest in ensuring that the hire purchase vehicles you purchase give you the greatest return for your investment. At the same time, you want to ensure that the capital allowances that you apply to these vehicles do not reduce your profits.
You therefore need to ensure that you calculate the capital allowances properly so that you get the best possible return for your hire purchase. To achieve this, it is essential that you understand the tax considerations associated with the hire purchase and the allowances.
The first thing you need to know is that the hire-purchase vehicle depreciation allowance is a one-off payment. This means that once you pay the capital allowances you cannot make any further payments on the vehicle.
The capital allowances start off at a low amount and increase as the car ages, whilst the deductible and primary insurances kick in at higher levels. As the car ages the amount of tax you pay reduces as the vehicle’s value starts to reduce. However, you can still claim deductions on your tax return as long as the vehicle is usable.
When calculating the capital allowances for the hire-purchase vehicle you should consider two things. Firstly, you should consider the age of the vehicle, which will reduce the amount paid when it is purchased. Secondly, you should also consider the mileage covered, this is referred to as the running cost.
For cars, the running cost is calculated by adding the annual mileage to the manufacturer recommended average of 500 miles per year. Calculating the rate at which the vehicle depreciates is quite simple as it simply takes the difference between the vehicle’s current market price and the total number of years the vehicle will be used before it has to be replaced.
When applying for the hire purchase or capital loan you are required to prove you are able to repay the loan. In most cases you will be asked to provide proof of employment or a business registration, this is usually done by showing a payslip from your last job.
Once this is provided you can either choose to take out a personal loan, an unsecured loan or take out a rental allowance. A rental allowance is based on how many days the vehicle will be used and will be paid for using up to 4 times your weekly wage up to the limit set by the company.
The benefits of taking out a hire purchase are that you do not have to own the car. You can use it for however you like for however long you wish, as long as you have the funds available. You can return the car if you find another vehicle cheaper or if you no longer want the car after the agreed period. You can keep the car until you sell it or give it away.
If you take out a hire purchase the capital you will be borrowing is not tax deductible. In most cases you have to pay tax on the amount you spend but the rental allowance is tax free.
The money that you get over the amount you buy is referred to as the down payment and this is the amount you will have to pay each month until you complete the contract. The down payment is taken out of the amount that you pay for the vehicle each month until the time you have completed the lease.
If you decide to give a hire purchase a try, you should make sure that you are getting the best deal possible. If the car is a good one, you will only need to pay a fraction of the cost as a hire purchase than buying the car outright. If you go for a less expensive car, you could be looking at paying up to half the cost or more for the car.
Capital allowances are a great way of buying a car. They can help you if you know what you are doing. If you need to get a car to use on a temporary basis when you are on holiday you may want to think about a hire purchase. This is a great way to help you save money whilst using a car that is going to be in your possession only for a short time. You can also hire a car when you are going on holiday, renting out a car can work out cheaper than buying a car.