LEASING your company vehicle fleet has grown in popularity – but is it a viable alternative to purchasing?
Using vehicles to deliver goods, or to get employees from one place to another means that companies will require any number of cars or vans.
This ranges from SMEs with between 1 and 25 vehicles,while larger organisations may require hundreds, or even thousands.
What is fleet leasing?
Fleet leasing is a viable option to purchasing company vehicles outright, especially when companies do not have the finances.
It’s convenient, cost-effective, can make your company look good with constantly up-to-date new vehicles, a great employee perk that can help you attract the best talent, offer a slightly reduced salary, and ensure safe, overnight parking and it’s an easy way of financing your business.
All the problems inherent in car ownership and disposal are taken away with the added bonus of a continual update of models once the leasing time period is up. Tailored programmes and management services can offer the complete service.
What are your vehicle finance options?
Leasing helps spread the cost rather than splash out a lump sum, and there are different financial routes you can take.
Each allows you to consider alternatives depending on whether or not you want to keep the vehicle at the end of the lease; or maybe you wish to pay low rental costs with a final large payment at the end.
Fleet funding is tailored to the type of business and the requirements of that business. (For example: the financial method chosen can allow you to release any capital or can help you reduce your tax liability.)
Finance options include: Contract Hire, Finance Lease or Outright Purchase.
Contract Hire does what it says on the tin: instead of ‘buying’ the vehicle over the term of the lease, you actually pay to use someone else’s vehicle (in this case, the leasing company’s).
Ideal for a minimum of fuss solution for the smaller fleet, you enter into a tailor-made agreement that includes fixed monthly payments, and is based upon the size of your initial deposit and the estimated mileage.
Benefits of Contract Hire
Only available on Commercial Vehicles, with a Finance Lease agreement, once again as a company you never actually own the vehicle, but you do own the value of the vehicle.
Finance Lease allows you to pay the entire cost over the period time of the lease, but with this you have a final payment due at the end of the lease contract – this payment is sometimes referred to as a balloon.
The size of this final rental payment is entirely down to the company (in agreement with the leasing company) as the lower the agreed monthly rental costs, the higher the final payment.
With the vehicle actually appearing on your company’s balance sheet as an asset, you will need to look at your cash flow requirements when calculating payments with your leaser.
Benefits of Finance Lease
Naionwide said flexible finance leases can be arranged and agreed to suit your company’s cash-flow and budgeting requirements.
As with Contract Hire, you can put down as little as three month’s advance rental as a deposit as opposed to a large deposit when purchasing a vehicle.
Subject to certain restrictions, when it comes to lease rental payments, you can claim 100% of VAT payments on commercial vehicles, with 100% of the VAT on the maintenance elements also reclaimable.
When it comes to taxable profit, the complete cost of the rental can be offset against it.
Unlike in a Contract Hire Lease agreement, mileage is not restricted, but it should be noted that excess mileage will affect a vehicle’s value at the end of the contract.
Once the contract has finished there is the option to continue to use the vehicle at an agreed rate rather than enter into another lease with a new vehicle.
The vehicles on the lease are shown on your company’s balance sheet as an asset, meaning that the value of your company’s assets are increased – ideal for companies that want to increase their assets.
It is important to know that, at the end of the contract, when it comes to disposing of the vehicle, there may well be a discrepancy between the value and the amount paid.
If the final asset value is more than the final balloon payment, you will get some credit back, either in the form of a payment or credit against the next lease; but if it is less, you will be expected to pay the balance.
Contract purchase is a finance agreement for VAT registered companies and businesses that want to own their vehicles but want to avoid the risk of depreciating assets.
With an Outright Contract Purchase, having paid the initial deposit, your company pays fixed monthly installments for the vehicle (with these payments NOT subject to VAT.)
At the end of the contract, your company has the option to purchase the vehicle at an agreed price following payment of the agreed balloon cost and any discrepancy in value.
Benefits of Outright Purchase
These do not include VAT (although VAT is payable on any optional service or maintenance packages.
At the end of the contract, you can take ownership of the vehicle with no third party involvement. Or you can decide not to, and hand it over to the leasing company.
A contract for agreed maintenance costs can e added to your monthly payments. This gives you more peace of mind as well as close control of your finances.
The vehicles on the lease are shown on your company’s balance sheet as an asset, meaning that the value of your company’s assets are increased.
The value of the vehicle can be written down against taxable profits
Depending on your fleet deal, contracts can help with the management of your fleet in terms of:
- The purchase of new vehicles
- Delivery of the vehicles
- Roadside assistance
- Maintenance, service and tyre replacement (as part of optional contracts)
- Manufacturer warranties
- Fleet administration, including servicing and replacement as well as dealing with such things as traffic infringements