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?