Leasing can aid cash flow

Unless your business is cash rich you would normally have to finance the vehicles that you purchase, whereas leasing tends to cost much less per month and capital is not tied up so can be invested elsewhere in the business. Whilst you are leasing a vehicle you will be tied to a contract for an agreed period, however, should you wish to terminate the lease prior to this date then you need to be aware that you will likely be faced with high charges to exiting early.

There will be no hidden costs with leasing vehicles so monthly payments are fixed, tend to be low and can be easily managed. The certainty of costs will allow businesses to have greater control on their cash flow and budgeting. Employees will also have the added benefit of being able to choose from a variety of vehicles and change and upgrade over a standard term of 3-4 years.

You will not need to worry about the depreciation of your vehicle or the added hassle of selling on when leasing. Often monthly payments can be lower due to VAT advantages, where owners may be able to claim back some or all of these charges (100% for full business use, 50% part business use, and 100% maintenance).

Tax relief

Tax relief on leased vehicles means you can claim the cost of “usership” over the term of the lease. 100% tax relief is now available for the rental paid on all cars with C02 emissions less than 130g/km. 85% of the lease rental is still available to claim for cars with C02 emissions greater than 130g/km. Tax relief is given via capital allowances to purchased cars, however, it will generally take in excess of 20 years to receive tax relief for the commercial depreciation suffered on the car.

In general leasing a vehicle removes many of the risks of vehicle ownership, including depreciation, servicing costs and eventual sale. When making your ultimate decision you will need to consider the overall lifetime costs of leasing vs purchasing and how you wish to use your vehicles as this will often provide you with the information to make the best decision for your business.

Written by Mark McKenna

Mark is a commercial insurance specialist. Starting work in the insurance profession in 1985 he has over 30 years’ experience in all areas of commercial insurance. As National Sales Manager for Bluedrop Services. Mark currently specialises in Motor Fleet Insurance and offers advice and support to customers in this area.