Make substantial tax savings when you buy your Day Nursery minibus

Introduction

Do you need a form of transport to use in your Day Nursery?

Are you looking for the perfect vehicle to pick the kids up from school and to be able to take them on days outs?

A minibus could be just what you’re looking for, offering opportunities for providing before and after school clubs, especially if you’re in a rural area. It can also be a huge time saver and help with advertising as you can get the vehicle “wrapped” in your Day Nursery branding.

There are currently substantial tax savings of up to 130% available from having a minibus in your Day Nursery; however, there are a few conditions that you need to comply with to take advantage of this.

Firstly, you need to understand what a minibus is in HMRC’s eyes

HMRC use “The Road Vehicles (Construction and Use) Regulations 1986” to define a minibus as:

“a motor vehicle which is constructed or adapted to carry more than 8 but not more than 16 seated passengers in addition to the driver.”

Why is this important, you may ask? Well, if your form of transport isn’t a minibus, it’s likely to be classed as a car. Cars are taxed in a completely different way to minibuses. Using a car in your Day Nursery is likely to be (but not always) much less tax-efficient than using a minibus.

Does it matter how I pay for the minibus?

In short, yes! When paying for a minibus, your main options include leasing, outright purchase, bank loan, and hire purchase (HP). The option you decide upon will affect how quickly you receive tax relief.

Leasing the minibus

In this scenario, you don’t actually own the vehicle in HMRC’s eyes; therefore, the tax treatment imposed by HMRC for leasing a minibus is different from purchasing one. When leasing a minibus, your company will only obtain tax relief on the lease payments you make during the period in question.

Example

Happy House Day Nursery Ltd decide to lease a Minibus for their Day Nursery at £400 per month, with a lease period of two years.

In their first year, they make twelve monthly lease payments. Therefore, the company will only receive Corporation Tax relief on the £4,800, resulting in a tax saving of £912 in that year (assuming a 19% Corporation Tax rate). The same saving will also be made in the second year.

Buying the minibus

The good news is that the tax treatment regarding purchasing a minibus is the same whether you buy it outright or buy it using either a bank loan or a HP.

In these instances, 100% of the cost of the minibus (in most cases) can be deducted in whole from your taxable profits in the year of purchase.

This means that even if you purchase the vehicle on the final day of your business’ financial year, you will still attract tax relief on the total cost of the minibus in that financial year, even though you might still be paying for the minibus several years later.

The rules around the date of purchase for HPs are slightly different; if you buy a minibus under a hire purchase contract, you can only claim tax relief on the cost of the vehicle when you actually start using it, so be careful with your timing here.

100% Tax Relief Example

Happy House Day Nursery Ltd have excess cash in the business and decided to buy a second-hand Minibus costing £25,000 for their Day Nursery. The company receives 100% tax relief on this amount, saving them £4,750 in Corporation Tax! (assuming a 19% Corporation Tax rate)

There’s more! With HMRC’s recently introduced Super-Deduction, you may also be able to get an additional 30% tax relief; that’s 130% tax relief!

The conditions are as follows:

• The business must be trading as a Limited Company
• The minibus must be new
• The minibus must be purchased between 1 April 2021 and 31 March 2023

130% Duper Deduction Tax Relief Example

On 31 March 2022 Happy House Day Nursery Ltd have excess cash in the business and decided to buy a new Minibus costing £25,000 for their Day Nursery. The company receives 130% tax relief on this amount, saving them a whopping £6,175 in Corporation Tax! (assuming a 19% Corporation Tax rate)

Summary of Tax Savings

In summary, in most cases:

1. To gain instant upfront tax savings make sure that your purchase meets the minibus criteria and that you buy or HP the minibus (not lease)
2. You will receive the 130% Super Deduction if you buy or HP the minibus; if you are trading as a Limited Company, the minibus is new, and you purchase it before 31 March 2023

Finally…

Before forging on we suggest you make sure that the purchase makes business sense first. The tax consequences of your actions are vitally important however they shouldn’t be the only basis for making the decision.

There will be additional costs that come with operating a minibus and you will also need to consider whether you need a PSV Licence to use the vehicle in your business.

Finally, there are tax consequences when you dispose of the minibus that requires consideration.

Every business is different, and each has its own exclusive tax position, therefore we advise speaking to your tax advisor before taking any action.

This information is subject to change and is not professional advice. Refer to our disclaimer for more details.