Five things to consider when leasing business vehicles

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Date: 7 February 2020

A fleet manager happily holds up the keys to a leased business vehicle.

Leased cars are vital to many businesses. Fleet management has become a full-time position, and one that can be critical to how a business functions, in terms of managing several different resources at once.

Business car leasing differs from personal car leasing in a number of ways, which we will discuss here, but there are also several similarities. It can be much cheaper to take a vehicle on a business lease rather than a personal lease, but this depends on your circumstances.

There are also many benefits for an organisation in leasing a vehicle instead of buying it. A lease effectively frees up capital that is not tied up in a depreciating asset and is not a financial liability on the balance sheet.

However, what other things should a fleet manager look out for when choosing a business lease deal? Here are five top considerations.

1. New or used?

A business lease deal can involve a new or used car. There are benefits to each, but essentially, a used lease vehicle is likely to be cheaper because depreciation has already occurred, and hence the loss of value to the lease company is not going to be as severe on a used car, compared to a brand new car.

However, a new car will have its full warranty available, where as a used car may have very little or even no warranty left. Of course, a used car will also have more miles on the clock, even if it is just two or three years old, the average age of a pre-leased vehicle.

2 The tax benefits

If you are leasing a car through a VAT-registered business, you can claim back 50% VAT on the monthly payment to the lease company, and 100% VAT on the maintenance agreement.

However, you do need to separate out and record what is business use and what is personal use of the vehicle, as you can only claim VAT back on the business use.

Personal mileage can be offset against company profits, though. This is based on fuel CO2 emissions, and if the car emits more than 160 g/km you can claim 85% of it back. If the emissions are less than that, you can claim 100%. This encourages manufacturers to make cars with reduced emissions, and for people to drive them.

Tax can be cheaper for employees too. The company car tax an individual pays depends on various things, the CO2 emissions of the car, its P11d value and also the driver’s income and tax bracket.

3. Don’t worry about depreciation

Because you hand a vehicle back to the leasing company at the end of the lease and get a new one, you won’t need to worry about depreciation. You will agree a mileage restriction and only need to think about not exceeding that.

This is slightly different with pre-leased or used lease cars, as depreciation makes this avenue cheaper in terms of the monthly payment.

4. No-deposit options

With business car lease deals, there is an option to pay no deposit, so if budgeting is an issue, you won’t necessarily have to find a deposit for a leased car.

Obviously this will make the monthly payments higher, but this may suit some businesses in terms of managing cashflow.

5. The additional costs

There are some potential additional costs applied to business lease deals, which you need to keep an eye on. The obvious one is the mileage restriction. This is important to the lease company as it influences the size of the monthly payment in terms of the expected depreciation. So you will be penalised if you exceed this mileage limit.

You will also be charged if there is excessive wear and tear on the vehicle, which is deemed to be outside reasonable limits. This criteria will be outlined and agreed in your terms and conditions.

This does mean that, even though you don’t own the car and will hand it back at the end of the lease, and your service and maintenance is covered, you can’t just drive the vehicle recklessly. You must look after it, or face extra charges.

Copyright 2020. Article was made possible by site supporter Pink Car Leasing.

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