To Buy or Lease Your Company Cars?
Most company cars and vans, these days, are financed by either outright purchase or a leasing contract. There are pros and cons to each approach.
Buying Outright
The main advantage of outrignt purchase for businesses is that they own the vehicles. When the payments have been made on your car or van it belongs to you. 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 that you must bear some significant expense especially if your company operates a fleet of 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. Initial down payments on comapny car leasing deals is usually very low and the monthly payments are generally very affordable. This is why leasing is so popular with company accoutants. Knowing how much transports costs are from month to month makes budgeting and financial planning so much simpler.
Also, most reputable leasing companies will offer to include the cost of all maintenance in the leasing contract. They may even ofer to include broken windscreen cover and replacement tyres.
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.
One of the key disadvantages of leasing is that the car or van never actually belongs to your business. 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.
Another disadvantage is that the government considers a company car as benefit in kind which makes it taxable and that tax is derived from the driver. A higher rate of taxation now applies to company cars since recent changes to the UK tax laws. There is, however, a tax adavantage for your company as you can claim for the vehicle as a capital cost and offset this 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 also a great deal of competition in the car leasing industry so it is well worth shopping around for the best deal. Many leasing companies provide additional incentives such as free breakdown cover and even flexible mileage plans. The best approach is to do your research, take advantage of the various online quotation systems and don’t grab the first car leasing deal that comes your way.
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