If your business is about to invest in a company vehicle, you'll want to make sure you make the best choice for your business - both from a marketing and a financial perspective. For many prospective clients, your vehicle will be their first impression of your business so you want to make sure it is the right one.
But do you buy a vehicle and own it outright, along with all the costs that it may incur? Or do you lease a vehicle, spreading the cost over time with the possibility of purchase at the end of the lease? There are advantages and disadvantages with each option; here are some of the pros and cons to consider:
Advantages of leasing:
- For a relatively low initial payment, followed by regular monthly payments, you get all of the benefits associated with running a brand new vehicle. This includes full manufacturer's warranty cover, which typically lasts for two to five years.
- For tax purposes, leasing can be an attractive option because many businesses are able to claim back part, or all, of the VAT. Exact figures depend on the VAT scheme that your company falls under but as a general rule companies can claim back 50% of the VAT on a car and up to 100% on a van. You can find full details of tax status for vehicles on the Government website.
- Leasing agreements can have servicing and maintenance added to the monthly package. This allows you to better predict the cost of motoring and avoid the nasty surprise of unexpected repair bills.
- Most lease agreements now offer a degree of flexibility at the end of the lease, allowing you to choose between purchasing the vehicle outright, refinancing or simply handing the vehicle back.
Disadvantages of leasing:
- You don’t own the asset and therefore it cannot be taken to cover any debts if the business has financial difficulties.
- Annual mileage is one of the main factors that determines the cost of leasing a new vehicle – the more miles you do, the more expensive the monthly payment will be. If you do more than 30,000 miles per annum it may not be possible to lease a vehicle from certain providers. If you are in a rural area and cover a lot of miles this could have an impact on availability.
- When purchasing a vehicle outright you only have one upfront payment to make (albeit for a large amount). With vehicle leasing you are committing to paying hundreds of pounds each month for the duration of the lease, a commitment not to be taken lightly.
Advantages of buying:
- You usually have a better opportunity to negotiate a discount on the list price of the vehicle than you do with leasing.
- As a vehicle is an asset, it can be taken to pay an outstanding debt.
- You own the asset and can decide to sell or trade it in at anytime. This also gives a degree of extra flexibility because you are not tied into running the vehicle for a specific period as you are with leasing.
- There are no mileage restrictions when you own the vehicle.
Disadvantages of buying:
- Depreciation begins as soon as a vehicle leaves the forecourt. According to the AA, a new car will have lost around 40% of its value by the end of the first year alone.
- You need to have a large amount of capital available to purchase a vehicle outright, which you are then tying up in a depreciating asset rather than leaving to spend or invest in other areas of your business.
Lastly you may also want to consider the purpose of the vehicle. If it is to be used as a marketing tool as well as transport then the type and condition of the vehicle is important.
Take the common panel van in all its variations, for example. If you are a tradesman working on construction sites, a second-hand van with a few scratches is normal. But a high-end outside catering company would be better served with something new and blemish-free.
Taking all of the above into consideration should help you decide how best to finance your company vehicle. Happy motoring.