Contract Purchase Benefits

Thursday 04 February 2010 | By Nige O'SheaBack to Blog

Welcome! After the stir created by the last blog, I am determined to settle you lot down. A nice safe subject for this blog, with no talk of anything violent. How about the benefits of Contract Purchase - of which there are many, believe me? So, to help you settle, and make better sense of it, we need first to start with a bit of information on VAT. From a consumer's point of view, there is no difference between zero rated and VAT exempt. However, for a VAT registered business, there is a big difference. With both zero-rated and exempt supplies (output tax) you don't charge VAT on your invoice but, if you do make exempt supplies, you probably won't be able to get back the VAT that you have paid on the products and services that you have purchased to carry out the job (input tax).
Contract Purchase is treated by the Inland Revenue as a purchase-type product. This means that you can use your write down allowance of 20% (10% if a car > 160g/km), or, 100% if it's a commercial and you haven't used up your Annual Investment Allowance in this tax year. Interest and service element of each payment is fully allowable for tax. Payments for depreciation and interest are not subject to VAT. Normally, at the end of the contract you can purchase the vehicle at an agreed price. Are you keeping up?
Contract purchase is normally appropriate for fleet users who are exempt or partially exempt for VAT purposes, as the VAT on the rentals would not be fully recoverable. This could include Banks, Insurance companies, Charities, Housing Associations, firms who have a balance sheet policy and those who want to benefit from writing down allowance.
So - are you feeling settled now? And, more importantly, do you think Contract Purchase may be suitable for you? If so, email with details of your business, whether you are VAT registered and the percentage of your annual supplies that are exempt from VAT and I will be in touch...

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