Search
Close this search box.
Sign up for our weekly Newsletter

487 – Will there be a change to accounting for contract hire?

Share

24 August 2010

IF YOU’VE heard whispers that the end of contract hire as an off-balance sheet item is nigh – well, stop worrying now.

There is a buzz out there about it – there are new accounting standards being proposed by the International Accounting Standards Board (IASB) that are intended to bring all leased assets onto the balance sheet, giving a more complete picture of a business’s financial position.

But it doesn’t affect small businesses.

Let me repeat that: it doesn’t affect small businesses.

The proposals, should they be accepted, only affect publicly quoted plcs that report to IASB standards. If introduced, they would ensure publically quoted companies leasing an asset – whether a computer, vehicle or property – would be required to account for it, giving greater transparency to investors.

Most UK firms, according to the experts at the British Vehicle Rental and Leasing Association (BVRLA) report to the UK’s generally accepted accounting principles (GAAP) anyway. And any convergence between the two standards is some five years away at least.

John Lewis, who is the chief executive of the BVRLA, had this to say about the proprosals: “The IASB has come up with a ‘one-size fits all’ proposal which means that a lease will be dealt with in the same way, whether it is a 10-year lease for an aircraft or building worth millions of pounds, or a three-year lease for a car worth £10,000.

“It is unfortunate that the standard-setters were unable to come up with a simpler way of accounting for short-term, low-value leases like those used for car leasing, which do not usually have a material impact on a company’s accounts.”

Anyway, whether the asset is shown on- or off-balance sheet, the main point about contract hire is that it provides you with access to vehicles for a set monthly fee. You don’t have to worry about the residual value cost of the car; and it’s incredibly useful for cash flow – there’s no large lump sum needed to buy the car in the first place. Or possibly account for the business car years after you’ve sold it under the new lease accounting rules.

If you want to know more about contract hire and the new lease accounting rules, which were introduced in April 2009, we have a special download that’s available in pdf format. Click on the link to begin downloading it: The big TAX change.

Business Car Manager: Editor’s Blog

Share this article

Facebook
Twitter
LinkedIn
WhatsApp
Reddit
Email

Want more motoring news?

Sign up here for our free weekly serving of motoring.

Sign up here for our free weekly serving of motoring.

Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

Latest news

Top