It’s understandable why you would be thinking this, there are so many advantages to leasing and to leasing vans, that to not consider leasing would be borderline foolish. But how does van leasing work for new companies?
In this article, we look at van leasing for new companies, what your options are when it comes to van leasing and how company car tax for vans works.
Van leasing for new companies
Unfortunately, van leasing for new companies isn’t quite as simple as making a phone call and having a fleet of vans delivered to your door. When you lease, there is a criteria that you have to meet in order to qualify and as a new company, this can prove difficult.
When you lease a van through your business, the business and its Director/Directors will have to go through a credit check. This is because the finance house will need to assess the risk of you defaulting on your payments. As a new company, you won’t have a long trading history and therefore the finance company has no evidence of how the new company keeps up with its financial obligations.
Before you apply for finance for a van lease as a new Company, you must be prepared to show the following;
- 3 years address history
- UK residency
- No current CCJ’s
- Opening balance sheet (if available)
- Proof of positive trading
- A Director that can act as guarantor
- Full UK driving licence
The finance house needs to make sure and feel comfortable that when they are lending money, they will be getting their money back so this is one of the reasons why they ask to see so much information in advance.
What finance options do I have for van leasing?
Now we’ve established what you need for van leasing, it’s time to look at your options.
There are two options available to you for van leasing, and they are a Finance Lease and a Business Contract Hire.
What is a Finance Lease?
A Finance Lease isn’t the most common way of leasing, but it is hugely popular for vans. A Finance Lease is where you pay a monthly fee for your van for a set period of time. Once that time is up, you sell the vehicle on in order to pay off the remaining balloon payment. 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.
Alternatively, you can pay something called a peppercorn rental. This is usually one monthly payment, and allows you to keep the van for another year.
What are the pros and cons of a Finance Lease?
There are lots of advantages to a Finance Lease. These include;
- There are no mileage or condition restrictions
- This means that a Finance Lease is great for vans that are expected to do high mileage, have conversion units installed, or will get damaged beyond fair wear and tear
- The balloon payment at the end of the contract is fixed
- This makes for easy budgeting because you will know how much it will be at the start of the contract
- If you sell the van for more than the balloon payment, you get to keep the equity
- If you are a VAT registered company then you can claim 100% of the VAT back on monthly payments
- You can go into a secondary period, also known as a peppercorn rental. This is where you generally pay one monthly payment and keep the van for another year. Any balloon payment will stay the same at the end of the additional year.
However, Finance Lease isn’t for everyone, and it does have its disadvantages;
- If you sell the van for less than the balloon payment, you will have to make up the difference
- Sometimes the lender will charge you a small admin fee
- You won’t own the van at the end of the contract
- Unless the person who buys the van off you then sells it back to you, but that’s none of our business if you decide to do that.
So those are some of the pros and cons of a Finance Lease. For more information on Finance Lease you can read our article here or watch our video below.
What is Business Contract Hire?
Business Contract Hire, or just Contract Hire or BCH, is the most common and popular form of leasing, and is often what people are talking about when they refer to leasing.
Business Contract Hire is where you lease a vehicle, in this case a van, for a set period of time making fixed monthly payments. As soon as that time is up, the vehicle is handed back with nothing more to pay (subject to mileage and condition restrictions).
What are the pros and cons of Business Contract Hire?
There are plenty of advantages to Business Contract Hire, that’s why it’s so popular. For example;
- You don’t have to worry about depreciation
- You hand the van back at the end of the contract and you don’t have to worry about the depreciation
- You might be able to afford a nicer model for less money
- When you have a Contract Hire you only pay for the depreciation, which means that you could end up affording a nicer model for less money that you might have thought
- You don’t have to worry about the disposal of the vehicle
However, there are disadvantages;
- You are subject to mileage and condition restrictions
- You cannot go over a pre-agreed mileage in a Contract Hire, otherwise you will be subject to an excess mileage charge.
- You also have to keep the van in a condition that is in line with the BVRLA Fair Wear and Tear Guide (British Vehicle Rental and Leasing Association).
- You don’t own the vehicle at the end of the contract
You can read more about Business Contract Hire here or watch our video below.
What are my options if I don’t qualify for van leasing?
If you do not qualify for van leasing because you are a new company, then don’t be disheartened. There are alternatives.
You could either look at a Cash Purchase or looking at buying a second hand van. A Cash Purchase is where you buy the van outright, with no finance agreement involved. This is mainly done with brand new vans. Or, you could look at buying a second hand van. You can read more about Cash Purchase here, and how to buy a used vehicle here.
Company Car Tax for Vans
If you have a company van, then you may have to pay company car tax. One of the advantages of having a van instead of a car as a company vehicle is that the tax rate for vans is fixed. This is opposed to a sliding BIK rate that company cars are subject to.
Will I have to pay company car tax for my van?
You will have to pay company car tax if you use your van for personal journeys.
However, there is some leeway in regards to what a personal journey is. You are allowed to drive your van for work purposes (such as to appointments), to a temporary workplace and for insignificant journeys, without having to pay company car tax. Insignificant journeys include grabbing a coffee or a newspaper on the way to work.
If you use your van for personal trips at the weekends, say for doing your weekly shop or dropping the kids of at football, then you will need to pay company car tax.
How much will my company car tax cost for a van?
As we said, there is a set rate for a van in terms of company car tax. How much you pay of this set rate depends on your tax bracket.
The fixed rate is £3150. So, if you are paying 20% tax, then you will be paying 20% of this cost. This is £630 a year or, if you divide it by 12, £52.50 a month.
If you have an electric van, you will pay £630 overall. You can read more about electric vans here and you can have a look at our top electric vans here.
The way company car tax is worked out for vans is extremely appealing to many, particularly as there are new company car tax changes that change the way a car is taxed. You can read more about how company car tax for vans work here, as this was quite a brief overview.
In conclusion, if you have a new company, then you may find qualifying for van leasing slightly more difficult. This is purely because you are a young company and therefore the finance company do not know how well you are going to meet financial obligations, and, if you can prove to them that you can meet the financial obligations then there is no reason why you can’t lease a van. There are a few options for you to choose from, suited to different situations. We recommend that you look over your options carefully, and talk them through with an experienced vehicle broker who will be able to give you the best advice.
- Things businesses should consider before hiring a Fleet Manager - 12th April 2021
- Tax benefits and implications of business car leasing - 8th April 2021
- Business car leasing eligibility - 7th April 2021