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Business Car Leasing vs Buying

If you’re unsure whether it’d be better for your business to lease its next new car or instead to buy it, then read on because our business vehicle leasing vs. buying guide explains everything you need to know and consider before you make this important decision.

Company Vehicle Leasing Vs Vehicle Buying: Benefits and Considerations

As with so many things in life, there’s simply no one clear answer to the question ‘should my business lease or buy its vehicles?’, because alongside considering the benefits and drawbacks of each method, you’ll also need to take into account your current business circumstances, financial situation, as well as any particular personal preferences you may have. 

Benefits of Leasing A Business Vehicle

  • Only pay for the period of usage, not the whole vehicle
  • No large up-front payment (so capital can be used for other projects)
  • Monthly payments usually fixed and fairly low (so affordable for all sizes of business)
  • No risk of financial loss (as the business neither owns nor has to sell the vehicle)
  • Avoid the expenses of ageing vehicles
  • Affordably update your vehicles more frequently (with buying, frequent updating is far less affordable)
  • Affordably access more premium vehicles (great for company image, staff morale and retention)
  • Road tax and breakdown cover incl. Servicing, repairs and maintenance can also be added
  • An on-going business paper-trail is provided (so less admin)
  • Monthly lease payments 100% claimable for cars emitting
  • Makes it easy to fulfil ‘duty of care’ legal responsibilities
  • Monthly lease VAT payments 50-100% reclaimable
  • 100% of VAT on a maintenance package is reclaimable

Considerations of Leasing A Business Vehicle

  • The business doesn’t own the vehicle so has nothing to sell (we see this as a benefit however, because it means your business hasn’t invested in a depreciating asset and doesn’t have the problem of selling nor the potential for financial loss)
  • Exceeding predicted mileage can attract fees, although selling an owned vehicle with more mileage on it would also attract lower proceeds
  • Company car tax for high CO2 band vehicles will probably dilute/negate other business financial benefits (so personal leasing might be better)
  • Only small reversible modifications may be permitted (depending on the finance company)
  • Term is fixed, and ending the agreement early may attract termination fees

Benefits of Buying A Business Vehicle

  • No monthly payment commitments (if bought outright)
  • The business owns and may sell the vehicle at any time (unless there are loan restrictions) and money can be put back into the business
  • A suitable method for those wanting to own vehicles set to appreciate in value (e.g. well-sought-after vehicles)
  • No mileage limit
  • You can treat the vehicle as you wish (however, vehicles not cared for depreciate faster in value)

Considerations of Buying A Business Vehicle

  • VAT will need to paid on the purchase price of the vehicle and can only be reclaimed if the vehicle is never used for any private mileage
  • New vehicles lose much of their value in the first 2-3 years and business vehicles depreciate even faster due to higher mileage, so are worth far less on selling
  • If bought outright (not via a loan), the full value of the vehicle must be found
  • If purchased outright, a large sum of business capital is tied up (and can’t be used for other projects)
  • If financed using a loan, up-front and on-going re-payments can be high (often a lot higher vs. leasing)
  • If purchasing via a loan, only interest is deductible from profits
  • The vehicle must appear on business accounts as a liability (which can limit ability to borrow other funds)
  • The business must organise and pay for Road Tax, breakdown recovery and MOT (the first two are included as part of the contract in the case of a lease car)
  • Owning and running a company car is time consuming: MOT, road tax, breakdown cover, servicing, repairs and maintenance all need to be arranged and paid for (if leasing, most admin/paperwork is done by the lease company)
  • Selling can be time consuming (not so leasing, where the car is simply handed back at the end of contract)
  • The vehicle can be modified for purpose in any way the business sees fit (so long as it complies legally)

If you'd like to speak with our friendly team about business vehicle leasing, simply call 0118 920 5130 or email us at: enquiries@selectcarleasing.co.uk

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