Should You Buy or Lease Your Company Vehicles?
Most businesses pay for their cars and vans either by outright purchase or by some sort of leasing contract. There are pros and cons to each approach.
Purchasing Outright
The main advantage of outrignt purchase for businesses is that they own the vehicles. When the vehicle is paid for it belongs to you (the company). This allows your company to sell the vehicles in order to retrieve some of the purchase costs and you may even offer the cars and vans to your employees.
One major disadvantage for many busienesses is the need to pay the full for the cars and vans. This can mean significant expense, particularly if your company runs a fleet of company vehicles. Finding enough funds to purchase vehicles outright can cause businesses some unwanted cash flow problems.
Businesses must be prepared to cover additional expenses including maintenance, insurance and breakdown recovery.
Company Car Leasing
The key advantages of company car leasing to business are the benefits it brings to cash flow. The initial down payment can be very low and the monthly payments far less than the equivalent cost of a loan. This is the aspect of leasing that makes it so appealing to accountants. Knowing how much transports costs are from month to month makes budgeting and financial planning so much simpler.
Also, most leasing companies will offer to cover the costs of all vehicle maintenance as part of the contract. Suppliers will even offer to cover the cost of replacement tyres and windscreens in the leasing deal.
Although car insurance is not normally included in the lease contract it is often offered by the leasing company as an optional extra which, if accepted, is generally cheaper than it would be if purchased separately.
A key disadvantage of car and van leasing for many businesses is tha the vehicle never actually belongs to them. Many businesses would actually see this as an advantage as it means they don’t have to concern themselves with vehicle disposal when the lease expires.
A disadvantage for the driver is that the government considers a company car as benefit in kind which makes it taxable. Recent changes to the UK tax laws mean that a higher rate of tax applies to company cars. There is a small tax advantage for your business as you can claim for the cars and vans as a capital cost and this will be offset against your company profits.
Clearly there are many factors to bear in mind when a company is considering either to lease vans and cars or to purchase them outright. There is currently a great deal of competition in the car leasing industry so shopping around is likely to get you the best deal possible. Many leasing companies provide additional incentives such as free breakdown cover and even flexible mileage plans. So the best advice is to do your homework and not to grab the first car leasing deal that comes your way.
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