Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
Savvy savers never pass up an opportunity to take advantage of ways to save on tax. So if you’re in the market for a new vehicle, you’ll be happy to know there is a tax efficient way for you to buy a car or van – it’s called a hire purchase agreement.
Hire purchase benefits for business owners
A hire purchase agreement is a unique way to finance the acquisition of a new or used car because you don’t actually own the vehicle until it’s paid off.
Typically, you’ll need to pay a deposit and arrange for monthly payments until the full value of the vehicle has been recuperated, and then you’ll have the option to purchase it. If you have trouble making payments, your lender may be able to repossess the car.
During repayment, you must seek lender permission before you sell or dispose of the car or van. If you don’t, it’s a criminal offence.
The advantages and disadvantages
Cons
Seemingly, there are only a few disadvantages associated with a hire purchase. The first is that an initial deposit is required although many needn’t worry about this because most lenders only require 10% of the vehicle’s value.
Of course, the size of your deposit and the terms of your loan will affect your monthly payment amount so to keep those low, make sure you have a sizable deposit.
Another turnoff could be that you don’t own the car until you have complete financial control after your last payment.
Not owning the car unfortunately means that you could lose it if you fail to make repayments and until you’ve paid a third of the total amount, your car can be repossessed without a court order.
Pros
The pros, however, definitely trounce the cons in this situation. Your payments are fixed so you can easily account for the cost in monthly budgets.
The option to buy the car once the contract is up is another plus and so is being able to return the car after paying off at least half the total cost.
And finally, you’ll get tax relief, in the form of capital allowances. This means that some or all of the value of the item can be subtracted from your profits before you pay tax. And while a deposit is required, the ask is pretty low at only 10% of the car’s price.
For help with more ways to save, check back weekly for additional tax tips.