The example below demonstrates how you can benefit from the new rules by selecting the ‘right’ car: generally a relatively expensive car with CO2 emissions of less than 160g/km.
Clearly, the leasing arrangement works out well here, saving around £65/month compared with buying, but that is dependent on the car being kept for only three years and having what might be for some a low mileage. The longer the car is kept and/or the higher the mileage, the less advantageous leasing becomes.
Remember that the new rules (in their different ways) are beneficial for both leasing or purchasing business vehicles.
| Example vehicle: BMW 3 Ser Sal 2.0d SE (177ps) Manual Incl Metallic Paint |
| CO2 rating of 128 g/km |
| Purchase of a new Car - via Cash Purchase | ||||
| Incl. RFL, Reg Fee & VAT | Cost | £27,095.48 | ||
| Assuming a negotiated discount of 10% | Capital Cost | a | £24,385.93 | |
| Capital allowances the customer, under the new April 2009 laws, | Year 1 | £4,877.19 | ||
| will be able to offset 20% on | Year 2 | £3,901.75 | ||
| the vehicles Capital Value each year on reducing balance | Year 3 | £3,121.40 | ||
| Less: tax saved | ||||
| 21% of the amount above, in: | Year 1 | £1,024.21 | ||
| 22% of the amount above, in: | Year 2 | £858.38 | ||
| 22% of the amount above, in: | Year 3 | £686.71 | ||
| b | -£2,569.30 | |||
| Less: the customer sells the car after 3 years, 60,000 miles on the clock (estimate) | c | -£6,773.87 | ||
| Add: road fund licence for the last two years | d | £240.00 | ||
| Add: interest you could have saved by investing the money (estimate) | e | £731.68 | ||
| So total cost using the discounted purchase price is (a+b+c+d+e) | = | £16,014.44 | ||
| Purchase of a new Car - via a Hire Purchase or Loan Purchase agreement | ||||
| Incl. RFL, Reg Fee & VAT | Cost | £27,095.48 | ||
| Assuming a negotiated discount of 10% | Capital Cost | a | £24,385.93 | |
| Capital allowances the customer, under the new April 2009 laws, | Year 1 | £4,877.19 | ||
| will be able to offset 20% on | Year 2 | £3,901.75 | ||
| the vehicles Capital Value each year on reducing balance | Year 3 | £3,121.40 | ||
| Less: tax saved | ||||
| 21% of the amount above, in: | Year 1 | £1,024.21 | ||
| 22% of the amount above, in: | Year 2 | £858.38 | ||
| 22% of the amount above, in: | Year 3 | £686.71 | ||
| b | -£2,569.30 | |||
| Add: interest on the loan (estimate) | c | £3,999.36 | ||
| Less: tax saving due to interest on the loan being tax-deductible (approx. @ 22%) | d | -£879.86 | ||
| Add: admin and end of term fees | e | £185.00 | ||
| Less: the customer sells the car after 3 years, 60,000 miles on the clock (estimate) | f | -£6,773.87 | ||
| Add: road fund licence for the last two years | g | £240.00 | ||
| So total cost using the discounted purchase price is (a+b+c+d+e+f+g) | = | £18,587.26 | ||
| Supply of a new Car - via a Contract Hire agreement | ||||
| Via Contract Hire Agreement (plus VAT) | Monthly Rental | £421.72 | ||
| 3 years on 60,000 mile contract (excl. maintenance) | ||||
| Total cost of the contract (3+35) | a | £16,025.36 | ||
| Add: VAT | ||||
| Year 1 (14 months) | 15.0% | £885.61 | ||
| Year 2 (12 months) | 17.5% | £885.61 | ||
| Year 3 (12 months) | 17.5% | £885.61 | ||
| b | £2,656.84 | |||
| Less: 50% of VAT which can be recovered | c | -£1,328.42 | ||
| Note assuming the customer is VAT registered and can recover 50% | ||||
| Tax-deductible expenses the customer, under the new April 2009 laws, | Year 1 | £6,346.89 | ||
| will be able to offset against profits | Year 2 | £5,503.45 | ||
| Year 3 | £5,503.45 | |||
| Less: tax saved | ||||
| 21% of the amount above, in: | Year 1 | £1,332.85 | ||
| 22% of the amount above, in: | Year 2 | £1,210.76 | ||
| 22% of the amount above, in: | Year 3 | £1,210.76 | ||
| d | -£3,754.36 | |||
| Add: road fund licence for the last two years | Incl. | |||
| So total cost is a+b+c+d | = | £13,599.42 | ||
