Fleet leasing vs. buying
Fleet Leasing Versus buying
To buy or not to buy. That really is the question here. If you simply can’t decide between fleet leasing versus buying then this article is especially for you. It can be a tough decision but as ever, your friends here at OSV are here to help by rounding up all of the key considerations when looking at fleet leasing versus buying.
Like any good versus article, we’ll kick off with the pros of each.
Pros of buying a vehicle for a company
While purchasing a fleet vehicle may seem expensive it does have some benefits. That being said, when purchasing multiple fleet vehicles you’ll find cost savings if you are not buying them all in one go. In the automotive industry, this is known as fleet purchasing. In recent years fleet dealers have been incentivising on fleets upwards of 3-4 cars but discounts used to only qualify on fleets of 10 cars or more. The cars are an asset within the business which helps with your accounts and the strength of your balance sheet. It can be re-sold to gain some funds into the business. Owning your vehicle’s gives the business some level of control and flexibility. Enabling you to dispose of them whenever you like, Maintaining the vehicles and the condition of them is also down to your discretion.
If you own the vehicles you will not be charged if the vehicles are damaged or have higher mileage. That being said, you will suffer the loss of value on the car if it is damaged or has high mileage so this is a cost benefit you’ll need to consider carefully.
If you purchase a company fleet vehicle 100% of your first year costs are allowed to be claimed against corporation tax if your car is low on emissions. Also if you buy the vehicles using a loan you can offset 100% of the interest charges against your end of year tax bill
Cons of buying a fleet vehicle
The cons of buying a vehicle certainly seemingly outweigh the pros. The main con is the cost. A significant amount of capital is required to purchase a fleet of vehicles outright. Yes, there will certainly be some significant discounts available if you plan to purchase upwards of 3-4 vehicles but this is still a more expensive way of obtaining a fleet for your business.
Another con is the responsibility and cost involved in managing and maintaining the vehicles. With a contract hire agreement, you will be offered a maintenance package to cover ongoing servicing and often some repairs not already covered by the manufacturer’s warranty. Most companies who buy their fleet vehicles must allocate a fleet manager to ensure all of the vehicles are properly maintained and cleaned. Or the business owner has to arrange it all. The cost of this employee needs to be included in your fleet acquisition costs. Some companies underestimate the time it takes to maintain vehicles. The cost of employee time and payment of invoices can all add up too.
When purchasing a lease vehicle there is a level of uncertainty about what the vehicle will be worth once you have finished using it. The added stress of selling it on including how much time and effort it takes to show the car to potential buyers and how many people will want to look at it before it gets sold.
Pros of leasing a fleet vehicle
Leasing a fleet vehicle comes with a huge wealth of pros. In fact, an increasing number of businesses are choosing to lease their fleet vehicles over purchasing them. The British Vehicle Rental and Leasing Association (BVRLA) Q4 2016 survey indicated the business car-and-van leasing fleet enjoyed a notable 6.6pc year-on-year growth.The reasons it’s become so popular are:-
The up-front costs are minimal in comparison to purchasing a fleet of vehicles. Initial payments followed by a monthly fee for a fixed lease term will still not equate to the same cost as purchasing vehicles outright.
Another benefit to leasing a fleet vehicle is the flexibility. At the end of your contract hire agreement, you have the opportunity to start a new contract with new vehicles. Employees will love always being able to use some of the latest makes and models on the market. Plus, you’ll benefit from the fuel efficiency of a newer car. Not only that, your fleet cars will never be out of Warranty if you have a maintenance agreement. This covers you against repairs for the duration of your lease. I should point out that a manufacturer’s warranty does not cover wear and tear items like brakes and tyres.
There are significant tax benefits to contract hire.
Contract Hire fleet vehicles can be offset against the company tax and VAT bill. You can claim 50% of the VAT on the rental price of the lease if the car is used for business and personal mileage. If the car is solely used for business mileage then you can claim back 100% of the VAT rental. Vans on contract hire can claim back 100% of the VAT whether the van is used primarily for personal use or business use. Claim back up to 100% of the monthly rental cost. This depends on the make and model of car The rate isn’t fixed at 100% for all fleet cars though. If the vehicle has higher CO2 emissions then you would get a lower rate of tax relief. Business car lease rentals are 100% Corporation Tax deductible for cars up to 130g/km and 85% for those above that figure.
Did you know?
If you take out a maintenance package on your fleet vehicles then 100% of the VAT can be claimed against your corporation tax.
Leasing simply offers a zero stress approach to fleet cars. Maintenance packages are pretty inclusive and you also don’t have the concern of selling on a depreciating vehicle.
The cons of leasing a fleet vehicle
With so many pros it’s hard to see how there could be any cons to leasing a fleet of vehicles over buying them. But there are a few. The first is obvious that you don’t own the vehicles. There is something to be said for owning things and having assets kept within the business. These assets can be sold on at a later date.
Sticking within mileage limits. This can be really quite tricky to manage. Especially if you have a pretty large team all doing different mileage. If any of the cars are returned with excess mileage then an additional fee is applied at the end of the lease contract. The good news is if you do get charges both the charge and the VAT are 100% deductible. Many companies ask their drivers to report the mileage monthly or quarterly to keep an eye on it.
Ensuring the vehicle is returned in good working order is a necessity for a contract hire vehicle. You must keep up regular maintenance checks such as servicing, in order to be compliant with the lease. If the lease car is returned with damage there would be additional fees to pay at the end of the lease term.