Vehicle leasing for business

With multiple ways out there for businesses to fund their vehicles, what makes leasing stand out? Ultimately, it comes down to the two things businesses always want more of: time and money.

Leasing covers all bases for businesses looking to add new vehicles to their fleet. It provides tax benefits, improved cash flow and unmatched convenience. All in the wonderful bundle of a shiny new car that’s enjoyable, economical and safe for employees. And, importantly, is considered a better representation of the business itself.

We will go into each of these points in more detail later on. But here are our top 5 benefits to leasing for businesses:

  1. Tax is reclaimable on lease costs
  2. You can represent your business with newer, more economical models
  3. The smaller initial investment can free up capital for investment elsewhere
  4. Reduced running costs and ongoing admin
  5. Enjoy discounts based on volume purchases
Business cars

1)       Tax savings

 

Reclaim tax costs

When a business is VAT registered, they will have the option to claim back a portion of the tax they pay towards their lease vehicle (this is why all business lease rates are advertised exclusive of VAT).

If the vehicle is used solely for business purposes, the full VAT total is reclaimable. This drops to 50% if the vehicle serves personal usage as well.

100% of the VAT applicable to the maintenance portion of your lease is reclaimable if you take out a maintenance contract. This is regardless of personal or business use.

There are other criteria that need to be met for you to qualify to reclaim tax, which you can read here.

 

Offset lease costs against your tax bill

In addition, you will be able to offset the cost of your lease against your annual tax bill. Unlike a purchased asset, the cost of leasing your vehicle/s is classed as an expense by the Tax Man. This means you can offset your lease payments against your profit and therefore your tax bill.

The amount you will be entitled to is dependent on the emissions of the vehicle/s in question. If less than 110g/km you are able to claim 100% of the lease rentals against profits. If more, you will be able to claim 85%.

Running costs including fuel and insurance are also classed as deductible expenses.

 

2 ) Free up capital

 

Initial investment

It’s the biggest draw to leasing a vehicle: you can drive away a brand-new car or van with a comparatively small initial investment. As a result, the tens of thousands of pounds that would have been put towards buying the vehicle is therefore freed up to invest elsewhere.

The upfront cost required for a lease is a multiplication of the monthly lease cost: depending on how you wish to divide up the total cost, this can be as small as 1 month or as much as 9. The following set monthly cost will be paid on a designated date every month over a fixed term. You can even include a comprehensive maintenance package to remove any other surprise motoring costs.

Altogether, leasing provides greater cash flow, is an easy means for businesses to budget and contributes towards a healthy balance sheet.

 

Total cost of leasing

Now, the pluses of this rather handy looking arrangement could be considered null and void if the overall cost of the lease was greater than buying your vehicle/s outright. And understandably so.

However, the positive influence of leasing on cash flow does not necessarily come at greater overall expense.

Lease costs are based on vehicle deprecation, with this figure being set from the start. There are costs associated with borrowing money that would not be applicable if buying outright. However, the fact the depreciation value is set at the outset of the agreement means the investment risk doesn’t sit with you. And the vehicle would depreciate when bought outright too.

The value of leasing is apparent when you consider that the road tax, breakdown cover and UK mainland delivery are always included (unlike when buying outright). Plus, you won’t have to worry about any of the costs associated with selling the vehicle/s on as the vehicle gets collected from you at the contract’s conclusion.

All things considered, leasing can actually save you money compared to buying and selling a vehicle over the same period.

Mercedes-Benz GLC business lease

3)     Reduced running costs

 

The first few years of vehicle’s life are known to be their most reliable. Not only minimising the hassle and cost involved with ad hoc repairs, but the loss of income due to vehicle downtime.

In contrast, while a lease vehicle will require an annual service (or more frequent depending on your annual mileage), it will not require an MOT until it is 3 years old.

In addition, in the unlikely event that there is a fault with your lease vehicle, this will be covered by manufacturer warranty and therefore will be repaired free of charge. Manufacturer warranty is usually 3 years or 60,000 miles in duration (whichever comes first) and covers most non-consumable items. 

Road Fund Licence is taken care of by the funder, as is collection of the vehicle at the end of the lease term. You also have the option to add a maintenance package to your vehicle lease which further reduces the administration involved in keeping your fleet moving. 

Furthermore, the newer vehicles available when leasing are more economical to run when compared to their older counterparts. Adding reduced fuel costs to the list of leasing perks!

As well as the reduced costs involved in maintenance and at the pumps, choosing to lease vehicles for your business could save you precious team resource due to its unmatched convenience. 

BMW business lease

4)     A positive representation of your business

 

For clients

A new car can speak volumes about a company: both to staff and prospective customers. In whatever industry you sit, first impressions still hold a great amount of weight. And ultimately, rightly or wrongly, the vehicle/s used by a business are inevitably considered as a projection of the quality of service or product to expect from them.

A new lease car, therefore, can be a great first impression to give to potential clients.

For staff

All businesses have a duty of care that ensures vehicles driven for work are of a standard deemed safe and fit for purpose. This is why many businesses choose to undertake company car schemes.

A business that chooses to lease new cars for their workforce will be choosing safer, more technologically advanced and generally more aspirational cars. Not only fulfilling their responsibility as an employer but adding a great staff benefit.

“A happy worker is a productive worker” holds true in this respect.

It is important to remember that staff using a vehicle for personal as well as business use, regardless of how it is funded, will be subject to BiK tax.

 

5)     Enjoy discounts based on volume purchases

 

The leasing market is a competitive one with lots of brokers vying for your business. Not only is this great for driving down rates, but also gives you increased negotiation power.

Here at Carparison, we pride ourselves on advertising our best rates first time. That being said, our rates are intrinsically linked to the volumes we put through both our funder and dealer partners. Therefore, the bigger the order, the lower we can negotiate costs.

Businesses frequently benefit from increased discounts when making volume orders that simply would not be possible for customers opting for a personal lease.

Mercedes-Benz X-Class business lease

Are there downsides to leasing for businesses?

 

The downsides for businesses choosing to lease are tied into to the contract stipulations that are consistent across other finance agreements.

Inseparable from the depreciation figures upon which lease costs are based, there are excess mileage charges when a vehicle exceeds the agreed annual mileage limit. Equally, the vehicles will be expected to be in a condition reflective of fair use for its age and mileage when it is returned at the end of the lease term. Any damage outside of this industry-wide wear and tear standard will therefore also be chargeable. Finally, it is expensive to terminate a business lease early so is only suitable for business who can commit to the full term.

With these limitations in mind, leasing would not be suitable for businesses whose need of the vehicle is variable or could be subject to excessive damage.

 

The Verdict

 

Leasing offers businesses the opportunity to improve their productivity and public perception while improving cash flow - and it really is as good as it seems. Naturally, it won't be suitable for all businesses. But those who are confident in their vehicle requirements will be hard pushed to find a more convenient or cost-effective alternative!