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New lease accounting rules for business car leases

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15 January 2016

Should I stop leasing?

Hey, no! It’s an accounting rule change that won’t affect the majority of UK companies.

  • The benefits of business car leasing continue:
  • Budgeted monthly expenditure for cars
  • Access to vehicles at low monthly rates
  • Use it but don’t own it – so no worries about selling the car later
  • Reclaim 50% of the VAT on the lease rental
  • A tax claimable expense
  • Read more here: What is contract hire? 

TYPICAL. Just when you thought you had fully understood all about leasing then the International Accounting Standards Board goes and changes it all.

Gulp!

Running a vehicle for business?

Don't leave yourself out of pocket - a guide to what you can claim.

So what’s going on?

Basically, business car leases – or operating leases in lease-speak– which were off balance sheet will now be on balance sheet (ie a liability).

Well, they will be from 1 January 2019.

Why change the lease accounting rules?

Basically the International Accounting Standards Board wants to make sure that accounts present a proper view of a company’s forward liabilities.

Finance leases have always appeared on the balance sheet, but operating leases have not.

What do the new lease accounting rules mean to me?

Err, very little, actually.

The new standard will only apply to public sector organisations and those large firms that report to International Financial Reporting Standards (IFRS). As most UK firms report to the UK’s Generally Accepted Accounting Principles (GAAP) there will be no change – until both types of standards converge. Whenever that should be.

OK, so why are you worrying me about it?

Well, we just thought you should know about if it comes up in conversation with your accountant. Or someone down the pub. And just in case you got panicky over some misinformation.

So carry on leasing then?

Yup, that’s about it. As chief executive of the British Vehicle Rental and Leasing Association, Gerry Keaney, says: “Vehicle leasing continues to grow in popularity and this has very little to do with any balance sheet advantages.

“Its main value comes elsewhere, sheltering companies from the risk of fluctuating vehicle values, providing them with extra flexibility and purchasing power and freeing-up precious working capital that would otherwise have been spent buying an asset.”

 

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