Glossary

Advance Rentals - Payments made by the lessee at the beginning of a lease or contract

APR - The Annual Percentage Rate. The true cost of borrowing after interest is compounded and all fees and charges are incorporated.

Assets can be tangible or intangible and are anything of realizable value; equipment, buildings, money in the bank or in transit, cash in hand and money owed to the business. Fixed assets are physical items such as equipment, buildings, plant, and vehicles. Current assets are cash, money in the bank, debtors etc. Non-current assets are any assets that do not easily fit into the previous categories.

Balance Sheet - A summary statement of all the accounts of a business, prepared monthly, quarterly and always at the end of each accounting year. It summarises the financial position of a business or organisation by showing and calculating the net result of assets, liabilities and owners' equity.

Balloon Payment - A final loan payment that is considerably higher than prior regular payments, in order to pay off the loan. You may have a balloon payment for a short-term loan that you anticipate refinancing. In the case of vehicle contracts these are sometimes not paid if the vehicle is returned at the end of the contract. (See Contract Purchase and Personal Contract Purchase). The balloon size can vary within certain limits and increase or decrease the monthly payments (as can the deposit).

Buy Back - A lease which, upon completion, allows for the title in equipment to be transferred.

Capital Allowances - The depreciation on a fixed asset is shown in the Profit and Loss Account and has the effect of reducing the tax bill. Different types of capital equipment attract different allowances. In the case of cars, this is currently 25% per annum. However, this is subject to a rule to the effect that the maximum claim for cars costing in excess of £12,000 will be £3,000. Consequently a car costing £20,000 will have a capital allowance of £3000 and not £5,000 in the first year. However, there is provision for a first-year allowance of 100% for new cars emitting up to 120g/km CO2. All this is geared towards encouraging people to buy vehicles that are more environmentally friendly. In the example above, the Written down value (see WDV) of the vehicle in the second year will be £17,000. The £3,000 depreciation appears in the Profit and Loss Account and has the same proportional effect on the tax bill as other costs. If the marginal rate of tax for the business is 22% the tax saving will be £660. As the WDV declines, so does the net annual tax benefit. In order to evaluate the relative merits to your business of obtaining these allowances through, for example Lease Purchase or alternatively reclaiming all net costs directly and at a flat rate through, for example, Contract Hire , one needs to take into account these declining allowances and compare over a period of time estimated as being the useful life of the Asset.

Capital Assets - see Fixed Assets under Assets

Cash Flow - A report which shows the real flows of money in and out of a business over a period of time. These are usually for comparison against a Cash Flow Forecast

Cash Flow Forecast - A report which shows the predicted flows of money in and out of a business over a period of time. Difficult if payments don't come in on time or contingencies aren't allowed for. The real purpose is to show what borrowing requirements and costs will be and how to optimise any cash surplus. This is a tool that many banks require to be used before taking a new business account or increasing overdrafts or loans.

Cost-benefit - A comparison of the costs of a project and the benefits it is supposed to yield. The usual stumbling block is underestimation of unexpected and spiralling costs. Can be used outside the business sector to see if a social good is justified in terms if its cost. The difficulty here is often that the benefits and costs can be difficult to translate into monetary terms. How much value one puts on environmental issues, for example, may well vary from person to person.

Depreciation - The value and utility of any capital equipment will decline over time due to wear and tear and because it may have been superseded by better, more efficient designs with lower operating costs (greener cars are an example of this). An allowance (see Capital Allowance) is made for this by writing down the value of the Asset (see WDV - Written down value) in the Balance Sheet and claiming it in the Profit and Loss Account. As a result the capital stock of a business and the economy as a whole remains competitively productive by allowing in part for continual replacement (the other part being the productivity of the equipment - see Cost-benefit).

ECOPS - acronym for Employee Car Ownership Plans. As distinct from Opt Out Schemes the employer underwrites the finance plan thus avoiding the employee having to pay a deposit or go through a credit check. The benefit to the employer is the greater degree of control over choice of car. See - Personal Contract Purchase and Personal Contract Hire.

Lessee - the person or entity that holds the lease and pays the Lessor a rental or repayment as agreed.

Liabilities - These include short-term or current liabilities such as bank overdrafts, bank loans taken out for the business and money owed by the business to its suppliers and long-term liabilities such as mortgages or long-term business finance and loans. Usually shown on the right hand side of the Balance Sheet. In the case of vehicles (and other items) they are shown as an decreasing Asset value and a decreasing Liability.

Net assets - Total Assets less total Liabilities.

Opt Out Schemes - the employer provides a cash alternative to a company car. See - Personal Contract Purchase and Personal Contract Hire for some of the pros and cons of these choices.

P11D - an inland Revenue tax working sheet (P11D WS2) available as a PDF from their website. The 'P11D value' of a car really just means the relevant value of the car for this form. The value required for the Inland Revenue form P11D and often referred to as the 'list price' as distinct from the 'on the road price' is usually the Manufacturers Retail Price, including VAT, excluding GVED (Graduated Vehicle Excise Duty - 'Road Tax' or 'Road Fund Licence'), first registration fee and delivery charges. However, some manufacturers may include delivery charges in their list prices. The bottom line to all this is that drivers of company cars will pay a car benefit charge at their marginal tax rate which is a calculation that incorporates the list price (as defined here), the CO2 output of the car and the user's tax rate. You cannot reduce the list price of the car by any discount received. If you want to be able to play around with various options to optimise the costs to the business and the employee you can download our free CO2 Tax Calculator and generate and print off any number of configurations without having to go back to a website to do it. You are also free to distribute copies to as many employees as you like if they are to have a say in the decisions. It is for this reason that many firms are looking at providing a cash alternative in Opt Out Schemes and ECOPS.

Profit and Loss Account (Also known as the Profit and Loss Statement) - This shows the trading performance of a business and is a summary of income, less cost of sales and opening /closing stock and expense accounts, resulting in the profit or loss of the business over an accounting period.

SSAP21 - the first part stands for 'Statements of Standard Accounting Practices' and number 21 concerns the Accounting Practices for leases and hire purchase contracts. Distinguishes between an operating lease (for example Contract Hire) where rentals are treated as a tax deductible expense, and other leases where the risks and rewards are transferred to the Lessee and therefore the car should be treated as an Asset with a corresponding statement of payments due in total (or fair value) as a Liability.

WDV - Written down values of Assets in the Balance Sheet.

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Car Leasing & Contract Hire prices for business are quoted net of VAT. Personal Car Leasing & Personal Contract Hire prices are inclusive of VAT. Lease rentals shown are based on 10,000 miles per annum, with an initital payment of 3 monthly rentals, without maintenance, inclusive of GVED (Road Tax) throughout the contract. Pictures shown may differ slightly from offer models. Please make sure you check all quotations carefully and ensure you have clearly written terms before entering into any vehicle contract. Our staff will always give you impartial advice.

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