Some define a fleet as a large number of vehicles. However, at OSV, we treat our fleet customers the same regardless of whether you are looking at a fleet of two or two hundred.
When a business has a fleet of vehicles, the chances are that they lease them. This is because there aren’t many businesses that can afford to purchase several vehicles outright every few years. So fleet leasing is extremely viable.
There are also a huge amount of benefits to fleet leasing that make it even more appealing for businesses than simply freeing up cash.
In this article we look at how fleet leasing works, and the benefits of fleet leasing.
How does fleet leasing work?
Firstly, let’s have a look at how fleet leasing works. Fleet leasing is when a company or corporation lease a number of vehicles for their business, which are then passed onto employees to use for everyday tasks.
How it works is simple;
You choose which vehicles you want, how long you want them for and what your budget is going to be. You will also want to consider your mileage limit. You then either go through a vehicle broker or a dealership to find the best deal. Once the contract is up, your vehicles are handed back and you have nothing more to pay, subject to mileage and condition restrictions.
What are the benefits of fleet leasing?
Now we know how fleet leasing works, what are the benefits?
There are a huge amount of tax benefits when it comes to fleet leasing, which is why it is so popular.
When you lease a vehicle, or a fleet of vehicles, the liability isn’t shown on the company account, they are “off balance sheet”. If you borrow money to buy a fleet of vehicles then the liability will show up on the company accounts and as it will be such a large of money, it could hinder your chances of getting a credit line in the future. So, leasing is very appealing in that respect.
You can also claim back 50% of the initial and monthly rental, because you are essentially renting the vehicle. And, you can also offset the monthly rentals against corporation tax. How much you can offset depends on how much CO2 your vehicles emit.
Low initial rental
When you lease a car, or a fleet, you can put down as much or as little as you like when it comes to the initial payment. You can put down one month’s rental, if you wish.
If you do this, then your cash flow will not be affected, making it hugely beneficial for businesses. The less cash you part with, the more you have to spend on daily business.
However, some businesses choose to put down more initially in order to lower the monthly payments. You could put down the equivalent of six month’s upfront and significantly lower your monthly rentals.
Either way, you will free up cash either by keeping the initial payment low or by keeping the monthly payments low.
Fixed monthly costs
How much you pay a month is fixed, irrespective of how much the vehicle depreciates. When you lease a car you are paying for the difference between the purchase price and the residual value, which is how much the vehicle is estimated to be worth at the end of the contract.
However, this cost is fixed, regardless if the car depreciates more during the contract than planned.
For example, if you had a fleet of Volkswagen’s a few years ago at the height of the emissions scandal, then you might have been worried about how this would affect the price of your fleet. However, if you leased the fleet then you wouldn’t have worried because the price is fixed, regardless of external factors.
Road tax is often included
This is a small benefit, but a benefit nonetheless. Often when you lease, road tax is included in the contract. This means that you don’t have to worry about taxing several cars every year. It saves time and is less hassle.
It’s time saving
Speaking of time saving, leasing itself is a huge time saver.
If you go through a vehicle broker, then they do all the research for you. All you have to do is give your preference in terms of vehicles, your budget and how long you want the vehicles for. They then do the research for you and find the best deal for you while you carry on running your business.
Once you have the vehicles, you don’t have to worry about anything. Road tax is often included and if you get a maintenance agreement, then all servicing costs are covered throughout the contract as well.
When the time comes for your contract to come to an end, the fleet will be collected, either by the finance house or an auction house. You don’t even have to return them yourself. This means that you don’t have to worry about selling them on or disposing of them, the work is done for you.
Ultimately, leasing is extremely time saving and allows you to get on with running your business.
You get a new fleet every few years
There are huge advantages to getting a new fleet every few years, and leasing allows you to do this with no problems at all.
Not only are new vehicles safer, they are also more economical, more reliable and come with more advanced technology. This, in turn, raises morale, because who doesn’t want a brand new car every few years?
It also is great for company image, as it shows that you are doing well enough to have a new fleet of cars every couple of years.
Not only that, but you will never have to have a fleet of vehicles that are outside of warranty. Most warranties last three years (or more), and the average lease contract lasts for three years, meaning you won’t have to have a fleet that are outside of warranty if you don’t want to.
You can have a pooled mileage
This is an interesting benefit, and one that only applies to larger fleets. However, it is one that should be worth noting.
When you lease a car, you will have to agree to a set mileage. If you go over this mileage, then you will have to pay an excess mileage fee. However, if you have a large fleet of cars, then you can have something called a ‘pooled mileage’.
If you return a vehicle that has gone over its mileage, this mileage can be ‘pooled’ with a vehicle with lower mileage. This then offsets the high mileage and balances it out. For example;
Your fleet have a set mileage of 20,000 miles. One vehicle is returned having done 25,000 miles and one is returned having done 15,000 miles. You can offset the larger mileage with the smaller one, averaging to 20,000 miles for each vehicle meaning you won’t have to pay the excess mileage charge.
As we said, this is often only applicable to larger fleets but it is something that is worth considering.
So those are some of the benefits of fleet leasing. As you can see, the benefits are great, and can be really advantageous to your business. Not only are there tax benefits, but you can also save a lot of time as well as free up cash. Because you hand the vehicle back, you don’t have your cash tied up in a depreciating asset nor do you have to worry about the disposal of the vehicle. We work with businesses who are looking to lease a fleet every day, so if you have any questions, then please do not hesitate to contact us.