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.