“If it appreciates, buy it. If it depreciates, lease it" - J.Paul Getty
It’s no secret that most business owners would like their company employees and fleets to be driving a brand-new car or van with the company logo on, if they could. But for many companies a new vehicle fleet is seen as a prohibitively costly expense and a luxury they can’t afford, leaving employees driving around in old vehicles in poor condition that can reflect badly on a company brand or image.
However, the way you think about financing your new car might just be about to change.
Business Car Leasing, also often known as business contract hire (or simply contract hire), is rapidly growing in popularity as a means for businesses to finance their own personal cars, their business car fleet as well as their commercial vehicles. According to recent data from the BVRLA, business car leasing currently accounts for around 1.23 million vehicles on the road in the UK*.
But what exactly is business car leasing, how does it compare to other forms of car finance? And can it save money for your business? Our quick overview below will cover all the various aspects to business car leasing, and help you safely navigate what can sometimes seem like a murky and confusing world.
Who is eligible for business car leasing?
A common myth surrounding business contract hire is that it only applies to large businesses, or those with sizeable fleets. In fact, the size of your business will have little bearing on your eligibility for a business car lease – every business can do it. Some of the most common forms of business types qualifying for a business car lease include:
- Sole Traders
- Self Employed
- Limited Liability Company (LTD)
- Public Limited Company (PLC)
- Limited Liability Partnership (LLP)
- Charity, Embassy or Government Authority
How can business car leasing benefit me?
Leasing isn’t just about getting a shiny new car or van.
The benefits of leasing a business vehicle extend to all parts of your business’s life, from allowing you to cut out big-ticket motoring costs such as maintenance and unexpected servicing and repair costs, to fixed monthly payments and allowing you to protect your business’s savings and divert the money into other opportunities.
This may be simply helping cut back your business’s outgoings, wisely investing the money you save on other assets or even new business development ventures.
Essential Benefits of Business Car Leasing
There are many essential benefits around moving to a business contract hire or car lease for your business’s fleet:
- Free up your business cash flow… with a business contract hire agreement you simply pay the car’s depreciation costs, allowing you to invest the remaining cash back into your businesses. This may be on new employees, innovative technology, offices or perhaps new machinery. Whatever your field, car leasing indirectly helps your business grow
- Control your business spend each month… your business car leasing costs are simply an initial payment and then set monthly fees for an agreed term, with no unforeseen bills or hidden extras. So, you know exactly the amount your car or vehicle fleet will cost you. There’s nothing additional to pay meaning you can budget with much more ease
- Run your business, not a car fleet business… your business requires 100% focus on the day to day activities of your company, not worrying about whether you or your employee’s vehicles will get from A to B. Business car leasing helps you do that. Once you’ve started the lease then you don’t have to think about the vehicle again. And if you take maintenance packages to deal with servicing then that’s covered too
- The cost-effective way for your business to drive new… unlike buying outright you are not paying the cost of the whole car and unlike other finance approaches, such as Personal Contract Purchase (PCP), you’re not charged interest on the entire car value. This means you can get more vehicle for your money
- Recover VAT and deduct expense from the business profit… If used only for business, reclaim 100% of the VAT on your monthly payments. If there’s some private usage, 50% can still be reclaimed. This puts more money back into your pocket
Mark Tongue from Select Car Leasing says:
“If a business were to lease a Mercedes C Class Saloon, it could still claim a proportion of the VAT back and monthly payments could be just £222.99, after an initial outlay of £2,006.912*. The car is owned by the vehicle funder and won’t appear on the balance sheet. Leasing payments are an expense, which can usually be deducted from company profit.”
- At the end just hand back the keys… and lease again… You don’t have to worry about selling-on your old models or fleet, just simply hand back the keys at the end of the business contract and then take a new business lease or leases. Business car leasing allows you to focus on the stuff that really matters in your business
Business Car Leasing – The Way To Drive Your Business Cars and Fleet in 2020
To summarise, business car leasing provides so many benefits to businesses of all shapes and sizes. Here, Select’s business leasing experts rank the top 10 benefits.
1. No large lump sum or initial outlay on the vehicle(s)
2. Reclaim up to 100% VAT on monthly payments
3. Road tax, breakdown cover and MOTs all included
4. No depreciation risk (new vehicles typically lose up to 50% of their value in first 2-3 years)
5. Only pay for the period you use the vehicle, not the whole life cost
6. Vehicle leases don’t appear on business balance sheets
7. No selling hassle when you want to change your business car fleet
8. Change or upgrade to the latest models every few years
9. No ongoing vehicle upkeep costs typically associated with older cars or vans
10. Affordable access to more premium vehicles
In the next part of this series of our dedicated series on Business Car Leasing, we’ll look at how you can use Business Car Leasing to get the most effective tax solution for your business.
*BVRLA Quaterly Summary: https://www.bvrla.co.uk/resource/bvrla-leasing-survey-summary-q3-2019.html
*Price correct as of 31/01/2020 Ts & Cs & Arrangement Fees apply: https://www.selectcarleasing.co.uk/car-leasing/mercedes-benz/c-class/saloon/