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How The Manufacturing Sector Can Reduce Vehicle Costs

UK manufacturers are desperately looking for opportunities to reduce running costs. Rising energy bills, increased road tax and the potential for export and import costs will hit the manufacturing sector hard in the foreseeable future.

However, according to researchers, improving logistics should be among the priorities to lower the financial burden. Outsourcing transport management will prevent manufacturers from haemorrhaging money and remain competitive. 

Whilst company cars bundled into salary packages helps to attract top executives, buying a fleet of vehicles outright has become an option manufacturing businesses are struggling to afford. 

Figures released by HMRC reveal there has been a significant decline of company cars being offered as a Benefit-in-Kind. Companies are now turning to business car leasing companies to advise on the right vehicles and funding options for their business. 

Leasing a company car gives manufacturing executives access to a wide range of premium vehicles together with several financial benefits, from both a business perspective and personal costs. 

Tax Relief Benefits 

It doesn’t matter whether you use a car part-time or full-time, you still have to pay tax. Leasing a company car offers tax breaks that notably impact your bottom line. 

Tax relief on lease agreements enables VAT-registered companies to claim 50% back on monthly payment. If the vehicle is used purely for business purpose, you are entitled to 100% VAT rebate. 

If you lease a van for your business, you can claim the full 100% back under VAT reclamation rules for van rentals.

Corporation Tax benefits can also be offset against your company profits in relation to car leasing. Vehicles with CO2 emissions under 110 130g/km lower enable you to recover a further 8% per annum and further lower your annual tax bill.

Free Up Cash-Flow 

Car leasing agreements are attractive to manufacturers that have minimal profit margins. Unlike purchasing a company car outright, leasing does not involve any hefty upfront payments. 

Lease hire agreements are paid on a monthly basis. This allows account managers to organise balance sheets. You know exactly how much money is going out of your account each month which makes financial planning inherently easier. 

Furthermore, the upfront costs are minimal – usually the first three months rental fees. This means you avoid shelling out a huge amount of capital and can invest money in other areas of your business.

Once the contract hire expires, there are no further costs to pay unless you exceed the mileage limits agreed when you signed the contract. At the end of a lease agreement, the vehicle is returned to the car leasing company. You then have the option to replace it for a newer model.

Save Costs On AFVs

Alternative fuel vehicles (AFVs) are becoming increasingly popular with UK businesses. Hybrids, plug-in hybrids and electric-only cars have lower CO2 emissions and thus subject to a lower VED car tax band

The cost of Vehicle Excise Duty (VED) depends on the age of a vehicle, the size of the engine and the official rating of CO2 emissions. An additional charge of £320 is applicable to cars with a list price exceeding £40,000. 

AFV fuel costs can also be less expensive than petrol and diesel. Plans to introduce more charging points throughout the UK will mean AFVs are more accessible to drivers that cover long distances. 

Buying a car outright is potentially damaging to companies in the manufacturing sector. Business car leasing provides a cost-effective solution and gives you more flexibility without losing any of the benefits of having a fleet of vehicles available to your employees and executives. 

 

Are Alternative Fuel Vehicles A Solution for Your Business?

Businesses are under increasing pressure to reduce carbon emissions. With government incentives and long-term plans to ban the manufacturing and sale of fossil fuel cars by 2040, many fleet managers are considering Alternative Fuel Vehicles (AFVs).

The introduction of AFVs has divided drivers into two camps. Petrol and diesel cars have their obvious advantages, but spiraling costs invite financial burdens. 

AFVs are less expensive to run and carry less road tax. However, the engines have limitations that are not ideal for every business right now. Whether AFVs provide a solution for your business depends on how you need to use fleet vehicles.

Hybrids (HEVs)

Hybrids are fast becoming the car of choice for business. The engines are a cross between petrol and electric, so you get the best of both worlds. They are the ideal solution that bridge the gap in the crossover from traditional fuels to all-electric cars.

The key advantage of HEVs is efficiency and low-maintenance. Running costs are less expensive that fossil fuels and lower tax bands are beneficial to businesses. Electric cars emit less pollution so are also more environmentally friendly. 

Because HEVs are economical around town and reliable over longer distances, they can be an ideal solution for businesses. They are also available for just about every class of car.

However, hybrids are not without limitations. Hybrids are designed to benefit drivers economically in urban driving conditions. Consequently, the performance suffers in comparison to diesel.

At the moment, hybrid cars are also more expensive to purchase than petrol cars although this is expected to change by 2022. If purchasing costs are an issue, however, business car leasing provides a cost-effective solution.

Plugin Hybrid (PHEVs) 

Whereas HEVs rely on reusing energy through components within the vehicle such as regenerative braking, plugin hybrids enable drivers to charge the battery through a power source, both at home or a charging point. 

PHEVs have the same benefits as HEVs with the added bonus of being more economical due to superior battery life and can cover greater distances. Once the electric charge is depleted, engines automatically revert to the conventional fuel. 

Whilst PHEVs do help businesses make significant savings to run, they also cost more upfront than equivalent models. This is because PHEVs run on lithium-ion batteries which are more expensive to manufacture and need to be replaced more often. 

Electric-Only (EVs) 

All-electric cars are the most energy-efficient and cost-effective choice for businesses because they do not use traditional fuels. Day-to-day running costs are significantly lower than petrol and diesel vehicles.

There are still other costs to factor in however. Battery packs in electric cars need replacing every 100,000 miles or so and do not come cheap. This expense can be avoided by leasing a car.

The other issue for some businesses will have with EVs is their inability to cover long distances. At present, real world electric engines can only manage up 120 miles on a single charge. 

A growing number of charging points across the UK will resolve this problem and create the infrastructure needed to support electric cars. However, there is still the issue of time. It takes around 40 – 60 minutes to recharge the battery on a fast charge point and up to eight hours to fully recharge it on a conventional 3 pin 240v socket.

Studies in five European countries reveal AFVs are a cost-efficient solution for businesses. However, until more charging stations are installed nationwide, PHEVs and EVs fleets in some areas of the country could encounter issues with refueling. 

The type of engine you choose really depends on what you need a company vehicle for. As a BIK for executives and drivers covering short distances, AFVs are perfect. For longer distance drivers, HEVs present a cost-effective solution. By 2022, we also expect PHEVs and EVs to present better alternatives as well.

The Ultimate Guide To Business Car Leasing for SMEs

If you are among the legions of small businesses in the UK that are deciding whether it will be more economically viable to lease a company car rather than buy one, this guide will help to explain what you can expect from business car leasing.

The overriding objective of leasing a company car is to have long-term access to vehicles you need to run your business or to offer as an incentive without your investment depreciating in value over time. 

Since 2018, fleet managers have also had to factor in rising road tax levies and fuel costs together with potential service and maintenance charges. 

You don’t need us to tell you that trying to calculate the cost of buying versus leasing a car is an economic minefield. Let’s take a look at the factors you need to consider.

What are the Benefits of Leasing a Company Car? 

 

  • Obtain a new vehicle with a higher specification that would ordinarily be out of your price range if you were to buy it
  • Avoid buying a car that depreciates in value 
  • Wider choice of affordable alternative-fuel cars in your budget range that enables you to benefit from lower VED road tax rates
  • Claim back on VAT charges
  • Free up cash flow that can be used to your advantage in other areas of your business

 

How Does Business Car Leasing Work?

Leasing a company car enables you to drive a brand-new vehicle for a set period of time – typically three or four years. 

You have the freedom to select from a wide range of cars that best suit your business needs. Alternative fuel vehicles (AFV) are also available – and thus more accessible to small businesses that do not have sufficient capital to buy a brand-new model.

The contract hire will include a mileage limit. The more mileage allowance you need the higher the monthly cost will be into order to cover wear and tear on the car. 

For the first month, you pay a deposit and the first month’s lease. This ensures your rental instalments are always one month ahead.

At the end of the lease agreement, the car is typically returned to the service provider with no other costs to pay unless you exceed the agreed mileage allowance, or the car is damaged. 

Contract Car Hire 

Business contract hire enables firms to finance a fleet of vehicles or a small quantity of vehicles without hefty payments upfront. The only capital you require is a minimum down payment.

Businesses that are VAT registered are best suited to business car leasing contracts because you can claim VAT back on the rental fee. 

For more details, take a look at our business contract hire page.

Personal Car Hire 

One of the simplest ways for SMEs to get access to new vehicles is through a personal hire agreement. This is a great option for companies that do not have the capital to buy ownership of a car.

Personal car leasing also means you avoid having to estimate (or pay) costs for services, repairs and maintenance (unless you are at fault for an accident). You always know how much money is leaving your bank account every month.

Although you never have ownership of the car, renting a company car for individuals offers tax advantages and is a hassle-free solution to owning a car. 

Insurance on Business Car Leasing 

Although business car leasing takes care of practically every aspect of managing a vehicle, one of the few things you must take responsibility for is arranging insurance (although we do have options that make it easier for you to access insurance).  We recommend you take out comprehensive insurance cover. 

Service and Maintenance 

Service and maintenance do not come as standard with business car leasing but can be purchased as an add-on. With this option, you will receive full cover including replacement tyres, parts and servicing. VAT-registered companies can claim back 100% of the VAT charges if the vehicle is used purely for business.

Toomey Leasing Group is the UK’s no.1 business car leasing company with over 50 years’ experience. If you’re an SME based in the UK and want to know how much leasing a company car will save you, contact us and speak with a member of our friendly staff.

Brexit: Drivers to Bear the Brunt of Increased Manufacturing Costs

The uncertainty around Brexit is hitting businesses hard. And costs are destined to increase even more once Britain leaves the EU.

Some car manufacturers are moving their operations outside of the UK  and are already planning to pass increased production costs on to consumers purchasing vehicles in the UK.

In the current climate, the harmony of a single market enables car manufacturers to build vehicles “just in time”. This allows them to source parts from all over Europe without the expense of stockpiling parts.

With new regulations expected to be introduced in the UK post-Brexit, border delays will disrupt the tight constraints employed by carmakers based in Britain and subsequently increase production costs.

In addition, the Society of Motor Manufacturers and Traders (SMMT) estimate EU tariff on cars will cost the industry £5bn more on import and export costs.

Car manufacturers say the additional costs will be borne by consumers.

 

Brexit Will Increase Motoring Costs

In the event of a ‘no-Brexit’ deal, import tariffs on cars and spare parts will incur a 10% tariff under World Trade Organisation rules. It is estimated that EU tariffs will add at least £1,500 on to the cost of foreign vehicles sold in the UK.

Drivers in the UK will also bear the brunt of increased manufacturing costs given import tariffs will also be applied to parts.

Brexit has already heaped more than £2bn on to the energy sector which has seen a rise in utility bills. Oil prices will go the same way.

Drivers in Britain are already out of pocket following US sanctions on Iran. Fuel costs added another 11p a litre on to petrol price and 13p on diesel. The RAC has warned the average cost of a full tank of petrol will hit a record high of £70.

Although Prime Minister Teresa May pledged a duty freeze on petrol for the ninth consecutive year, the policy leaves a £9bn hole in the Chancellor’s budget?

How much longer will the government permit duty-free tariffs on petrol. Once the freeze on fuel duty is inevitably lifted.

 

What Will Brexit Mean For Mobile Businesses?

2019 has already been announced as the most expensive year to own a car. For mobile businesses, motoring costs will inevitably rise year on year.

The hike in Vehicle Excise Duty last year already added an average of £65 a year on road tax for new cars with CO2 emissions over 255g/km.

With such daunting increases for motorists, mobile businesses that rely on a fleet of vehicles could be forced to downsize and cut operations.

Whilst buying business vehicles outright puts a significant stress on business capital, leasing a fleet of cars releases cash flow that is vital for businesses to function efficiently.

Business car leasing provides a solution to some of the problems posed by Brexit.

With so many companies across multiple sectors already starting to feel the pinch of Brexit, managers need to prepare for the next two or three years now. Can your business really afford to buy a fleet of cars in a post-Brexit world?

Why Business Car Leasing Needs to be Part of Your 2019 Financial Planning

The cost of buying a car outright is causing headaches for financial planners in the UK. Increased costs on road tax, car emissions, insurance and maintenance fees could mean small businesses accept losses on their vehicles.

Road taxes will go up again in April 2019 in conjunction with the government’s inflation hikes. Financial experts have warned British motorists that new tax laws will add unexpected costs on to car ownership.

As a result, business planners are weighing up the financial pros and cons of buying or leasing a car.

 

Financial Implications of Company Cars

From an economic standpoint, company cars consist of three considerations; equity, depreciation and interest on lease or loan payments (unless purchased outright).

In the current climate, a financed car is a seriously expensive commodity. Businesses with older cars are faced with the decision to pay higher rates in the CO2 emission tax band or replace your existing vehicles.

Is buying a new car an expense you can afford? The average price of a car in the UK is £33,559 – a 38% increase over the last decade! A weak sterling has meant that car manufacturers have shifted their rising costs on to consumers.

It’s safe to say, the only real financial benefit of owning a company car outright is the tax benefits. Yet with the introduction of revised tax brackets, these previous asset breaks have suffered a dent as well.

It’s important to understand the tax implications of buying a company car. This is something we discuss in our free guide to leasing a fleet of cars. Essentially, commuting expenses and personal travel are non-deductible and keeping accurate records of business travel incurs administration costs.

Leasing a company car does not incur any of the costs, depreciation, interest charges or admin expenses you lose when owning a company car outright. Everything is paid for in one lump sum payment and remains consistent.

Financial planning has never been so easy.

 

Financial Considerations of Leasing a Company Car

Leasing a fleet of cars is a cost-effective solution that requires very little financial planning. All that is required is the simple task of deciding which services you want to include in your lease plan.

The fee you pay for leasing a fleet of cars is the same every month. If you choose to include maintenance options – which is highly recommended – you don’t even have to worry about repair and maintenance costs.

Furthermore, when a leased vehicle is off the road, it is replaced with another car. This means your business will remain operational. You won’t lose profits and you won’t need to conduct a financial planning strategy to make up the loss.

Other financial considerations include the number of miles you expect to cover as this will have an impact on the monthly rental, fuel costs and the cost of insurance.

The ability to reduce your financial liability to run a fleet of cars can help to preserve capital, improve cash flow and give you more flexibility when the time comes to upgrade your fleet with vehicles that have low-emission engines.

Want to know more about how managing a fleet of cars can help you to manage your finances better in 2019?

Download our free guide now.