Can a sole trader claim back lease payments?
Hi
I need to buy a new or second hand car. I'm thinking of going the leasing route because I have been told that I can put it through our business, which is a sole trader business, as an expense and we can claim it all back against our income. Also, I'm told that, as we are sole traders, we are exempt from benefit in kind. It sounds to good to be true!
Look forward to your advice
Shane Cox (Moycullen Galway)Dec 2015 Filed under: finance
Expert answer
Hi Shane,
We enlisted the expert assistance of Conlan Crotty Murray & Co (Leopardstown, Dublin 18, 01 295 9090, www.conlancrottymurray.com) to answer this one for you. Here's the response:
"Generally speaking, leasing companies will only lease new cars. On the basis that the individual decides to lease a new car then the rental payments under the lease agreement should be treated as an expense in the accounts of the self-employed individual. As the lease period is usually three or four years this provides for a significantly accelerated write-off of cost for tax purposes as compared with the purchase of an owned vehicle where the tax write-off under the capital allowance regime is spread over eight years. However, at the end of the lease period if the vehicle is traded in against a new vehicle the trade in allowance on the first leased car may trigger a claw-back of lease charges previously deducted for tax purposes.
To the extent that the individual uses the car for private use in addition to business use then an appropriate restriction on the tax deductibility of the leasing charges should be applied. E.g. if the car is used 40 per cent for private use, then 40 per cent of the lease payments should be disallowed as an expense in computing income for tax purposes. The benefit-in-kind provisions referred to by the reader do not apply to self-employed individuals. The benefit-in-kind rules would apply to the extent that a leased car is provided by an employer to an employee in computing the employee's payroll tax liability. There is no private use restriction on the tax deductibility of leasing expenses for a car where the car is supplied to an employee and that employee uses the car for private purposes.
Some of the annual lease rental expense may be clawed back in the computation of income for tax purposes if the car has a retail value at inception of the lease of more than €24,000 and the CO2 emissions from the car do not exceed 155g/km. If the car has CO2 emissions of more than 155g/km, but not exceeding 190g/km, the value of the expense deduction for income tax purposes is restricted by reference to a reduced capital limit of €12,000. Where the CO2 emissions on a car exceed 190g/km, no deduction for leasing costs is permitted in calculating the individual's income tax liability for the year.
Therefore, for new leased cars costing no more than €24,000 with CO2 emissions not exceeding 155g/km the lease payments may be written-off against income tax over the course of the lease period.
We recommend that professional advice be sought before entering into any lease arrangement."
I hope that clears it all up for you Shane.
Shane O' Donoghue - Complete Car Advisor@Shane_O_D