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What's in a lease rate? (continued)

Date: 01 August 2008

You may think all leasing deals are identical, but no two are exactly the same, and the devil is in the detail. Tom Webster reports

Taxing times

On top of keeping the car on the road, another big daily cost for the fleet manager to consider is tax. However, in this case, VAT can work for your business rather than against.

As contract hire is a business expense, a company is allowed to reclaim VAT on the payments. With maintenance included in the outlay, VAT can therefore be reclaimed on those payments as well.

We asked David Raistrick, European head of automotive at accountancy firm Deloitte, whether a company could reclaim VAT if they outsourced maintenance.

"They could, but there is a real risk that, if they did it separately, that revenue and customs would question whether the car is being used for private or business use," said Raistrick

Road fund licences are another aspect of a lease rate that can be affected by the reclaiming of VAT.

"If you take the vehicle with a road fund licence as part of the maintenance agreement then you can only get 50% recovery on the tax disc," according to Raistrick.

"If you structure the agreement properly you can strip out the VAT on the road fund disc.

"If you talk to your leasing company, you can ensure your agreement is structured so the VAT is stripped off.

"At the end of a leasing agreement, there can be charges depending on the state of the vehicle or if it has covered excess mileage," he continues. "Depending on the drafting of the agreement, you can be subject to VAT on these payments, too. However, the right wording in your agreement can cut these out as well.

"A big fleet has more bargaining power and may be able to get their leasing company to rewrite the agreement. Smaller fleets would be best advised to shop around to get the best option for them."

What Masterlease and Lex charge in their lease rates

Opting out

We also asked if the current negative financial climate would have any influence on fleet managers choosing whether or not to take out maintenance packages.

"We're not hearing of people opting out from the maintenance and tyres option," said John Lewis of leasing association the BVRLA.

"In these times of heightened financial constraint, people like the stability of fixed, predictable costs

"But some of our members are giving customers the choice of paying a reduced maintenance supplement by getting any work on the car done by an independent repair outlet rather than a main franchised one.

"We're also seeing less take-up of the relief-car option. These days, it's becoming easier to get a courtesy car from your local garage if you book in advance for maintenance. Also, most insurance tends to include the option of a hire car if you are involved in an accident that isn't your fault."

The days of having to deal with several different people to acquire and look after your fleet of vehicles have gone, and leasing firms can provide you with a comprehensive service that ensures you need never have to lift the bonnet of one of your own cars. Just be sure you know exactly what it is you're paying for.

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