Millennials rising in leasing demand
Millennials are rising in leasing demand as they discover the joys of an affordable new car
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IF you contract hire your business cars, then those business car lease rentals are allowable against income tax or the firm’s corporation tax.

However, certain lease rental restrictions apply, depending on your car’s CO2 exhaust emissions.

The lease rental restriction bands

  • If your car has CO2 emissions of 130g/km or less, 100% of the lease costs can be offset against taxable income.
  • Business cars with emissions of 131g/km or more have a 15% restriction (ie only 85% is claimable against taxable income).

 

Vauxhall Insignia Grand Sport: 100% can be claimed if below 130g/km
Vauxhall Insignia Grand Sport: 100% can be claimed if below 130g/km

How do the lease rental restrictions apply to the self-employed?

For sole traders and partnerships, the same restrictions apply minus any private element – usually about 20% (HMRC will want to see detailed records if you are claiming for more.

How does this work in practice? For example, if 20% of your motoring is private, then 80% of the business car lease rental can be set against tax if the car has CO2 emissions below 130g/km.

Dog in the driving seat
Dog: no lease restrictions

So if your personal contract hire lease was £250 a month, then you would reduce the £250 figure by 20% = £200, which would be the amount you could offset against taxable income. As long, of course, as the car was below 130g/km CO2.

The current system for calculating car lease rental restrictions has been in place since March 2009; it replaced the expensive car leasing disallowance – a complicated formula which the current system happily simplifies.

The lease rental restriction applies to the lease plus any blocked VAT – the ‘effective rental’ as it is sometimes called in the industry.

That means for most businesses, 50% of the VAT cannot be claimed since there is a private use element of the car.

Lease rental restriction only apply to cars; they do not apply to vans.

We just wanted to let you know...
We have an exclusive range of new vehicle leasing special offers this month available to all our readers...
Nissan Micra couple
Don’t get too comfortable: lease rental restrictions change 2018

Lease rental restrictions – be prepared for future changes

  • The current lease rental allowances will change from April 2018.
  • For details of the future lease rental restrictions click here.

Do you have a car leasing question?
Feel free to ask us your question

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