You will be hard-pressed to avoid adverts these days about leasing a new commercial vehicle – especially when those ads promote low, attractive monthly payments.
But aside from that, there are other “tax advantages” that many may not be aware of!
What is an LCV lease?
The word “lease” is perhaps an overused term.
Sometimes, you’ll see mention of a Finance Lease or Operating Lease, whereby usually you will be required to sell the vehicle at the end of the term to a third party, retaining most of the sale proceeds.
Then there’s Lease Purchase, which is very similar to Hire Purchase, but the most common lease you’ll come across is Contract Hire (confusingly not having the word ‘Lease’ in the title).
How does a contract hire for a van work?
Think of it as a long-term rental. When obtaining a quote, you’ll need to decide what term you want to commit to, say 3 or 4 years.
There will be an initial deposit, usually equivalent to several monthly payments. After that, you’ll pay the same fixed monthly amount right up to the end of the agreement, allowing for accurate budgeting.
You will also have to estimate your annual mileage while the van is in your possession. This is to allow the leasing company to estimate any depreciation.
Does this protect me from an unexpectedly high depreciation rate?
Yes. The leasing company takes that risk, and most of what you pay is the depreciation they estimate the vehicle will incur.
There’s no worry about a sudden, unexpected fall in value while you have the vehicle. If that happens, the lease company take the pain, not you.
What happens at the end of the Contract Hire term?
The lease company collects the vehicle. Providing no significant damage is noted on inspection, and the agreed mileage hasn’t been exceeded, that’s the end of the matter.
What about any damage bills for the vans?
Some people complain of high bills for damage at the end of a lease. But you shouldn’t be too concerned if you take care of the van.
When the lease company estimates what the vehicle will be worth at the end of a lease, it assumes that it will be in good condition. This helps to keep the monthly lease payments low.
If the vehicle has damage over and above what is considered to be fair (most lease companies comply with a condition guide issued by an independent industry body), then yes, charges will be made.
But, consider this.
Suppose you had purchased the vehicle outright and were now trying to dispose of it, either by part-exchange, private sale or to one of the high-profile trade buying companies. In that case, they will all also reduce the amount they are prepared to offer for the vehicle if it has damage. So, ultimately, the damage has to be paid for anyway.
What are the LCV tax benefits when leasing with Contract Hire?
Firstly, VAT. With most other types of finance agreements, the entire VAT element has to be paid with the deposit, with the cash flow implications that come with it.
With Contract Hire, you only pay the VAT that applies to each payment, and for VAT-registered customers, the applicable proportion can usually be reclaimed on quarterly returns.
In your profit and loss account, these payments are treated as a tax-deductible expense. Known as ‘off balance sheet’, the vehicle is not treated as an asset, more that it is being hired for a fixed period (which, essentially, it is).
LEZ / ULEZ Savings
While LEZ charges are not considered a tax saving as such, having newer Euro 6 vans operating in your business/fleet means you can avoid costly fees (or fines) associated with driving into cities such as London, Glasgow, or Birmingham.
Leasing or contract hire allows you to upgrade vehicles more easily to newer models, which will pass the increasingly more stringent emission levels.
What about light commercial vehicle capital allowances?
Currently, because there is no option to purchase the vehicle when sourced under a Contract Hire agreement, there is no scope to claim any capital allowances.
The same is true with an operating lease with a large, final ‘balloon’ payment at the end.
Vehicles sourced on hire purchase (HP) or outright purchase will be considered assets and, therefore, will be eligible for capital allowances.
Are there any “Benefit in Kind” advantages when leasing a new commercial vehicle?
Yes, although these advantages also apply when the vehicle is funded by any means.
If you provide a van or pickup to an employee and they are permitted to use it for private use (even if this is just commuting to and from a place of employment) – they will be liable for personal tax, as the usage is considered to be a ‘perk’, or a benefit in kind.
The good news is that, unlike cars, the amount is fixed, regardless of the vehicle’s size, cost, or CO2 emissions, the current charge being £3,960. That’s not what the driver will pay; it’s purely tax due on that figure, so if they are paying income tax at the rate of 20%, they will pay £792 a year, or £66 per month. However, if they are provided with fuel for private use, the charge is substantially higher.
Double Cab Pickups
A word of warning – the situation for double cab pickups is changing.
HMRC is shortly to redefine double cab pickups as cars for taxation purposes, so those employees that have been using a high spec Toyota Hilux Invincible or Ford Ranger Wildtrak for private use and enjoying a low tax rate will see their tax bill rise sharply.
The introduction is being staggered depending on when the vehicle was or is to be bought or leased, but any new vehicles sourced from April 2025 onwards will carry the new tax burden. Those that were sourced (including ordered but not delivered) prior to that date will continue to benefit from the lower rate until either the lease expires, the vehicle is disposed of, or 5th April 2029, whichever comes first.
It’s expected that there will be a huge influx of orders before spring 2025 with the potential for product shortages (in other words, anyone considering leasing a new pickup may want to act swiftly).
This is another reason to consider leasing. Also, as of April 2025, a purchased pickup (not leased under a contract hire agreement) will be treated as if it were a passenger car for corporation tax purposes.
Arranging Leases Quickly & At Low Rates
You still have time to beat the up-and-coming changes.
Contact Evangate FS to find out more about the different finance options available for LCVs. We can discuss your business circumstances and start searching for the best lease or HP deals.
We even offer a “cheapest van PCP deal” challenge – where we aim to beat any other quotes you have received.
It’s free to get a quick quote, and we can also help source a commercial van or pickup that suits you.
Please note: We have included a short summary of the advantages of leasing a new light commercial vehicle. It has been compiled in good faith, but please always consult your accountant or other financial professional to ensure that any advice is accurate and up to date, taking into account your own circumstances.
