In this, the next in our series of ‘to disallow or allow,’ we look at leased cars. This area has been subject to changes almost every year and with a new government in place we don’t expect that to stop as the state pushes to achieve Net Zero. Yes, the extent to which we use leased vehicles is one of the ways by which the government is seeking to meet legally-binding emission goals. And in this case, the way it does this is by making more environmentally friendly options financially attractive through tax incentives.
There is a major difference between buying a vehicle (whether through a finance arrangement or not) and an operational lease. Today, I’m focusing only on cars ‘owned’ under an operating lease where a vehicle’s ownership does not change and it is expected the vehicle will be returned at the end of the lease. It should be noted that this rule applies to taxis as well as cars, but does not apply to any form of bike or commercial vehicle (i.e. van or HGV)
Since March 2021, for any such leased vehicle with emissions over 50g/km (i.e. Vauxhall Astra, Land Rover Evoque, Volkswagen T-Cross) there has been a partial disallowance add back for expenses of 15% of the total lease cost, less any maintenance charge. However, the good news for those leasing electric cars (i.e. Skoda Enyaq, Volkswagen ID.3 or Mini Electric Hatchback) and many hybrids is that this there is no partial disallowance, and the full amounts can be claimed against profits as a deduction. This, alongside some very favourable benefit-in-kind rules (compared to vehicles with emissions over 50g/km), means that low emission cars are more tax efficient on the whole.
Regardless of the emissions however if any car is to be used for personal use purposes, 50% of any VAT charge is not allowed to be reclaimed.
If you have any questions about expenses that are allowable or disallowable, please get in touch with us.
Callum McKinnon, M&S Accountancy and Taxation
