Fleet leasing explained

We look at everything you need to know about fleet leasing...

If you have a business, and your employees need to travel to work, then you may be considering getting them all company cars.

This is often known as a fleet of cars, simply because that is the collective noun for cars and we don’t think that a ‘mayhem of cars’ would give off the right vibe.

Anyway, if you are looking at getting a fleet of cars for your business, you might be considering leasing them. Fleet leasing is hugely popular and is extremely appealing to business, mainly due to the huge advantages fleet leasing offers to businesses.

But what exactly is fleet leasing? And how does it work?

In this article, we look at everything you need to know about fleet leasing including how it works, the advantages, and whether you should lease your fleet or buy.

What does fleet leasing mean?

Firstly, let’s have a look at exactly what fleet leasing means.

Fleet leasing is essentially where a company or a corporation have a number of vehicles for a set period of time for their business, while paying fixed monthly payments. These vehicles are passed onto their members of staff for business use, and often for personal use as well. Once this set period of time is up, the cars are returned. The fleet can then be replenished with brand new, updated cars.

It’s as simple as that.

What are the advantages to fleet leasing?

There are many advantages to fleet leasing, which is why it’s become so popular. In fact, the BVRLA (British Vehicle Rental and Leasing Association) have noted that the business car-and-van leasing fleet has enjoyed 6.6% year-on-year growth, which is extremely impressive. And, it’s easy to see why when you look at some of the benefits;

  • It’s a great employee perk. A study OSV carried out found that advertising a job that came with a company car attracted some of the best candidates for the job.
  • It is often cheaper
    • The upfront costs are minimal compared to if you purchased the vehicle. Leasing is often cheaper than buying because you are not paying for the full amount of the car, you are only paying for the depreciation. This means that you will be paying less than if you were to get the vehicles on a purchase scheme.
Woman talking on bluetooth in car
  • You don’t have to worry about the disposal of the vehicles
    • When the contracts are up, the vehicles are picked up by the finance house. This means you don’t have to worry about the disposal of multiple vehicles. It also means you can get a brand new fleet every few years. This is great for company image and for morale, as your employees will love driving around in the latest models.
  • The fleet will never be out of warranty
    • Most warranties last a minimum of three years, which is around the same time as a lease contract. This means that you won’t have to worry about repair costs, because the chances are the vehicles will all be in warranty for the duration of your contract.

If you allow your employees to use their vehicles for personal use, then you also get an additional range of benefits:

  • As we mentioned, it’s a great employee perk
    • It also means you could be able to offer a slightly lower salary
  • You will not have to worry about overnight and weekend storage
    • Keeping a fleet of brand new cars in a car park is not advisable, as you can imagine. Unless you have a high-security forecourt then it could cost you a lot of money to store the vehicles overnight and at weekends
    • However, if your employees can take their vehicles home, you won’t have to worry.
  • The employee is responsible for the maintenance of the vehicle
    • This includes ensuring that it is clean and in good condition, as well as ensuring it doesn’t go over the pre-agreed mileage.
    • The chances are you will have a maintenance package on each of your vehicles, which covers the cost of servicing throughout the contract. However, your employee will be the one who will have to ensure the vehicle is serviced at the right intervals.
Unsure what's included in the maintenance agreement? Don't worry we have that covered, explore now

It should be noted that if your employees do use their vehicles for personal use, then they will have to pay company car tax, but more on that later.

What are the business benefits of fleet leasing?

And the advantages don’t stop there! There are even more benefits to be had with fleet leasing in the form of business benefits. Some of these benefits include:

  • On a Business Contract Hire, you can claim 50% of the VAT back of the monthly and initial rental in your quarterly VAT return
    • You can claim 100% back if your fleet is not used for personal use.
  • The fleet can be “off balance sheet” so the liability of the fleet does not show up on company accounts
    • Considering the liability of an entire fleet could be quite huge, you can see why this is very appealing to many businesses
  • You can offset up to 100% of the lease rental against corporation tax. How much you can claim back depends on the CO2 emissions of the vehicle. If the fleet emit less than 130g/km of CO2, then you can claim back 100% but anything above that and you can claim 85%.
  • Also, if you have a maintenance package then you can claim 100% VAT back on this.
best vans to lease

So those are some of the huge benefits of fleet leasing. As you can see, there are so many reasons why fleet leasing is so popular, and is consistently growing in popularity as more businesses are made aware of these advantages.

Fleet leasing vs. Buying – Which is better?

You might be trying to decide whether to lease or buy your fleet. Buying your fleet is the traditional way of getting a new vehicle, or several new vehicles. Both options have their advantages, and one might be better for your situation than the other.

Benefits of buying your fleet;

If you buy your fleet, then you may still be able to find some impressive cost savings. If you do not buy your whole fleet in one go, then this is called fleet purchasing and you can access good discounts. A long time ago, fleet discounts only used to be available on fleets of 10 vehicles or more, but these days fleet dealers offer great discounts on fleets of just 3 or 4 vehicles.

Row of seat cars at a dealership in various colours.

Buying a fleet can also help with your accounts and show the strength of your balance sheet as they are an asset to the business. If you sell them on, then this allows you to put the funds back into the business.

When you buy your fleet, you do not have any mileage or condition restrictions. Maintaining the vehicles is also down to your discretion, and you can dispose of them whenever you like. Buying your fleet offers you more flexibility than leasing can.

Disadvantages of buying your fleet

However, fleet buying is still considerably more expensive than leasing. In business, cash is King and buying a whole fleet of vehicles requires a huge amount of capital, despite the discounts.

While you have more flexibility in terms of maintaining the vehicle, you will have to pay for it and manage it yourself. This is opposed to a maintenance package which will cover everything for you. Some underestimate the cost and the time it takes to maintain the vehicles so it is important that you take this into consideration.

If you buy your fleet, then you will be responsible for disposing of the fleet and selling them on. This means that you will have to worry about depreciation. There is a level of uncertainty as to how much your fleet will be worth when the time comes for you to dispose of the vehicles. Also, you will have to go through the stress of selling the fleet on.

Advantages of leasing your fleet

We’ve mentioned the benefits of leasing your fleet above, such as the fact that you don’t have to worry about the disposal of the fleet or go through the hassle of selling the fleet on.

We also touched upon the fact that leasing is often cheaper. This is because you only pay for the depreciation of the fleet. To determine the lease price, you essentially take the purchase price and the residual value and work out the difference. You divide that total by the number of months the contract is for and that gives you your monthly payments. This is opposed to if you bought your fleet outright or on a purchase scheme, where you would have to pay the full amount for the vehicle. So fleet leasing is often much cheaper.

There are also tax benefits which we mentioned above, that are not available if you buy your fleet.

woman with brown hair working out calculations next to a laptop with a pen in her hand

Disadvantages of leasing your fleet

However, there are disadvantages.

If you go through Business Contract Hire, then you are subject to mileage and condition restrictions. At the beginning of the contract, you are given a set mileage that your employees cannot go over. You are also obliged to keep the fleet in a condition that is in line with the BVRLA Fair Wear and Tear standard. If you do not, or you go over your mileage, then you will be subject to additional charges.

You don’t own the vehicles, which means that you do not have that asset within the business. Whether this is an advantage or disadvantage is down to you.

So those are the pros and cons of both, and each option is suited to different businesses. Whichever you choose is up to you, but we recommend talking to an experienced vehicle broker who works with fleet leasing and buying, to help you weigh up your options.

Using a fleet vehicle for personal use vs. keeping it onsite

You may be wondering whether it is a good idea to allow your employees to use their vehicle for personal use or to keep the vehicles onsite overnight and at weekends. There are benefits to both, but there are also huge disadvantages, so it’s important you consider both before you make a decision.

The pros and cons of your fleet being used for personal use

Some of the advantages of allowing your employees to use their vehicles for personal journeys include;

business man in blue suit holding car key ring over car leasing documentation
  • Raised morale
    • Everyone likes a new car, and your employees will be thrilled at the thought of getting a new model every few years. It will make them happier and will help you retain the best employees
  • They are in charge of maintaining and looking after the vehicle
    • You don’t have to worry about storing the fleet and they are the ones who have to schedule the servicing and ensure it is in a good condition
  • No more missed buses or trains
    • If your employees can drive their cars to and from work, then they will no longer be reliant on public transport. And after the Southern Rail crisis, we all know what a huge advantage this can be.

So those are some of the advantages. However, there are some disadvantages, including;

  • The fact that you will have to pay company car tax
    • This is the main disadvantage to allowing your fleet to be used for personal journeys.
    • Company car tax has to be paid if your employees are using their car for personal journeys including travelling to and from work.
    • How much you pay will depend on how much the car is worth, the employee’s personal tax bracket and the CO² emissions of the vehicle.
  • You do have a duty of care as an employer
    • This means ensuring that the vehicle is legal and fit for purpose
    • You are also responsible for making sure your employees are fit to drive, are not doing too many miles or spending too long on the road.

In conclusion, fleet leasing is where a company or a corporation have a number of vehicles for a set period of time while making monthly payments. There are many advantages of this including tax benefits and the fact that you don’t have to worry about the disposal of the vehicles. You also don’t have to worry about depreciation. Whether you lease or buy your fleet is down to you, but there are some huge benefits of leasing that are hard to ignore. You can also allow your employees to use their vehicles for personal use, something that raises morale and helps retain the best employees. We work with businesses who want to lease a fleet on a regular basis, and know everything you need to know about fleet leasing. Therefore, if you have any questions, then please do not hesitate to contact us.

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Rachel Richardson
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