If you are a business, then the chances are that you want a van. Or maybe you want several vans. How are you going to go about getting them?
There are a few options available to you; you could buy them outright with cash, go through a purchase scheme, or you could lease them.
We know that in business, cash is King, and buying several new vans with cash might not be the most attractive, or viable option for you. A purchase scheme is another option, going through a Hire Purchase means that you will own the vans at the end, but the monthly payments can be pricier. So, you might be looking at leasing.
Leasing vans is a very viable option, and one that many are coming around to the idea of.
But how does it work? What are the benefits?
At OSV, we work with businesses every day, and we talk about van leasing on a regular basis. So in this article, we look at everything you need to know about van leasing for businesses, including the options available to you and how company car tax for vans works.
What options do I have for van leasing?
When you lease a van through your business, you have two options; Contract Hire and Finance Lease.
What is Contract Hire
Contract Hire is the most common form of business leasing, and it can work well if you are looking to lease a van.
You essentially have a van for a fixed period of time, making set monthly payments. You will also have a pre-agreed mileage and agree to keep the van in a condition that is in line with the BVRLA Fair Wear and Tear Guide. It should be noted here that there is a separate Fair Wear and Tear Guide for vans, which gives you more leeway in terms of what is allowed and what isn’t. However, there are still guidelines.
When the contract is up, you hand the car back with nothing more to pay (subject to mileage and condition restrictions).
What are the benefits of Contract Hire?
Contract Hire is very appealing to businesses, and it’s easy to see why.
The price is fixed for the duration of the contract, and you don’t have to worry about depreciation. The finance commitments can also be “off balance sheet” which means that the liability of the finance doesn’t appear on the company accounts.
You can also claim 100% of the VAT back if you are leasing your van through a VAT registered company. It should be noted that you can only do this if you do not use your van for personal use (more on that later), but if you do then you can still claim the monthly cost of the lease against profits. If your van emits more than 160g/km of CO2, then you can only claim 85% back.
If it emits any less, then you can claim 100% back. You can look at our top electric vans here.
You can read more about Contract Hire here, or watch our video below.
What is Finance Lease?
A Finance Lease is a more traditional way to lease a van. With a Finance Lease, you have no mileage or condition restrictions and you can also install conversion units, such as refrigeration units.
With a Finance Lease, you pay a fixed monthly fee for a period of time. Once that time is up you can do one of two things;
Pay a small fee called a peppercorn rental. This is usually the cost of one monthly payment and will allow you to keep your van for another year.
Or, you will need to find a buyer to buy the van off you. This is so you can pay off the remaining finance, otherwise known as the balloon payment. The balloon payment is a slightly larger fee and is set at the beginning of the contract, it does not change. If you sell the van for more than the balloon payment then you get to keep the equity. However, if you sell it for less, then you will have to make up the difference.
If you or your business then buy the van off the person that bought the van, that’s up to you.
What are the benefits of Finance Lease?
Businesses often choose Finance Lease because there are no mileage or condition restrictions. Therefore, they do not have to worry about additional charges at the end of the contract.
The liability of the finance can also be “on balance sheet” which can be good for the company accounts. Finance Lease is also good for budgeting, as you know how much the balloon payment is going to be, and therefore have plenty of time to budget for the larger payment.
And, if you decide you don’t want to part with your van just yet, then you can continue to pay the peppercorn rental each year, as long as the finance house allows it. It should be noted that you will still need to pay the balloon payment at the end of the contract, regardless of whether you pay a peppercorn rental or not. You can read more about Finance Lease here or watch the video below.
How do I qualify for van leasing?
As long as you are a business, you will be eligible to lease a van through your business. This includes if you are a sole-trader. However, it will take more than simply being a business to qualify for van leasing, I’m afraid.
You will have to qualify for finance as the finance house has to be sure that you will be able to make the monthly payments. To do this, they will check the credit score of the company and its Director/Directors.
Ideally, you should be prepared to present the following to the finance house;
- Proof of UK residency
- 3 years of address history
- No current CCJ’s
- Proof of positive trading (for at least three months)
- A Director that can act as a guarantor
- A full UK driving licence
- Opening balance sheet if available
If that all checks out, then you are good to go ahead with your lease contract.
Can I get a van lease if my business has bad credit?
If your business has bad credit, then it can make things more difficult. However, it’s not impossible. If the finance house can see that you have positive trading for the past few months, then that should go some way to prove to the finance house that you can make the monthly payments.
If your business has bad credit then they will turn to the Directors. If they have a strong credit score, then they may ask for a Director’s guarantee. This means that the Director or the Directors will act as a guarantor and take on the monthly payments should the business fail to. If you are willing to do this, then you are still in with a good chance of qualifying for car finance.
If you have bad credit and your business has bad credit, then it will become more difficult. However, the key in this situation is to talk to an experienced and trustworthy vehicle broker as there will be other options.
They will be able to go over your options and find the best solution for you.
Can I get a van lease if I have a new company?
If you are a new company then again, it will be slightly more difficult to get a van lease. This is pretty much down to the fact that you won’t have a long history of a positive net worth.
Therefore, the finance house can’t be sure you will be able to make the monthly payments because they have no proof that you have done so in the past.
This isn’t your fault, and cannot be helped, but it can make leasing slightly more difficult. But, not impossible. Again, the key is to talk to an experienced vehicle broker who will be able to help you out and talk you through the options that are best for you.
How does company car tax work for vans?
If you have a company vehicle, then the chances are you will have to pay company car tax. However, company car tax works differently for vans than it does for cars.
You will not have to pay company car tax for your van if you use your van for business journeys only. This includes journeys that are;
- Made as part of work
- Such as travelling between appointments, for example
- Made to a temporary workplace
You can also use your van for ‘insignificant’ private journeys. This includes things such as grabbing a coffee on the way to work or picking up a newspaper.
However, if you use your van for personal journeys such as doing the weekly shop or picking your kids up from school, then you will have to pay company car tax.
You are also exempt from company car tax if your van is a ‘pool van’. This means that;
- The van is available for use (and is used by) more than 1 employee
- It’s available to each employee for them to do their job
- The van isn’t ordinarily used by just the one employee, to the exclusion of others
- Isn’t normally kept at or near an employee’s home
- Is only used for business journeys
- Exceptions include driving the van home to get an earlier start the next day
How is company car tax for a van calculated?
This is where the main differences between company car tax for a car and company car tax for a van come in.
The tax rate for vans is fixed at £3,150. The amount you pay depends on your personal tax bracket. If you are in the 20% tax bracket then you will pay 20% of £3,150 which is £630 a year and £52.50 a month.
The exception is if you have an electric van, as it emits zero emissions. In the case of an electric van, you will pay a percentage of £630.
In conclusion, you have two options when it comes to van leasing for businesses. These are Contract Hire and Finance Lease. Each have their own advantages and disadvantages and are suited to different people. There are a few things that you will have to present to the finance house to ensure that you qualify for finance, and as long as you have these things teamed with a strong credit score, then you are the perfect candidate for van leasing. Hopefully this has cleared a few things up in regards to van leasing for businesses.