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As your business grows, you may find that you require vehicles for employees to conduct work. One of your vehicle options may include leasing electric cars. However, before leasing an electric car, you must understand the key legal issues you need to avoid.
Overview of Electric Car Leasing
If you have an electric car lease for your business, this means that you rent an electric car from a leasing company. You will do so for an agreed period, which is often two to three years. You enjoy full use of the electric car. When the lease gets to the end, you hand the vehicle back to the leasing company.
With electric car leasing, you make an initial payment to the leasing company. During the leasing period, you will make smaller agreed payments to the car leasing company.
Legal Issues With Electric Car Leasing
When leasing electric cars through your business, you could come into some legal issues if you are not sure of the rules relating to electric car leasing. Therefore, we explain some legal matters you should try to avoid when you get an electric car lease.
1. Corporation Tax
When you get an electric car lease for your business, you may be able to include it in your profit and loss account. As a result, you pay a lower corporation tax bill. However, this depends on what type of car lease you get. You could bump into legal issues if you do not get this right. With a finance lease, the costs are included in profit and loss. However, with an operating lease, they are not, as this is a long-term rental agreement.
2. Value Added Tax (VAT)
You will also pay VAT when you lease an electric car, which means you can recover it like you do your other business VAT payments. However, a legal issue to avoid is getting the amount of VAT you can recover wrong.
When you recover VAT for your electric car lease, you cannot recover all the VAT. This is because there is an assumption that you had some personal benefit from using the electric car you lease. Therefore, you can only recover 50% of the electric car lease VAT. This is basically a 10% VAT rate. However, any maintenance package that comes with your lease cost is eligible for 100% VAT recovery.
3. Salary Sacrifice Scheme
A potential legal issue to avoid when electric car leasing for your business are issues associated with any salary sacrifice scheme you may offer to your employees. A salary sacrifice scheme means you can offer leased electric cars to your staff where they sacrifice some of their salary for this. A salary sacrifice scheme may benefit you as a business owner as it means you may retain staff for longer and meet your ESG action plan for your business.
The scheme works by deducting the cost of the electric car lease from your employee’s wages. Then what is left of their wage after that is what they are taxed on and pay National Insurance (NI) contributions for. However, legal issues could arise if you do not implement a Salary Sacrifice Scheme correctly and have the technical HR support to manage it. Furthermore, legal issues can arise in terms of termination. For example, if an employee leaves your business, you must still pay the car lease. If you are unable to, you could end up breaking the lease contract and running into legal issues.
This cheat sheet outlines what you should be aware of in your lease agreement.
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Key Takeaways
You may decide you need an electric car for your business and choose to get this through an electric car lease. This means you rent the electric car and make payment for your use of the vehicle during the lease period. Then you hand the car back. If you have an electric car lease, you need to be aware of legal issues to avoid. This article explains three legal issues to avoid when car leasing. It explains corporation tax issues to be aware of and VAT issues to be mindful of. The article also explains that if you choose to offer an alternative channel for electric car leasing, it could become legally problematic.
If you would like to avoid running into legal issues when leasing electric cars, contact our experienced leasing lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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