How should I buy that new company vehicle?

That’s the key question when looking to replace an existing company vehicle or purchase a new one for the first time. The market has seen dramatic change over the last few years with changes to the tax costs of having a company car, and the greater choice of vehicles available. You have two major choices – do I buy the car or lease it, so here are some issues to consider for each option:

A) Buying outright

1)    The business will have to find the money up front and out of existing cash reserves;

2)    You take the residual value risk of the vehicle i.e. what it will be worth when you sell it on;

3)    Gives you greater control as you can sell it on when you want and not be governed by a finance agreement. You can keep it as long as you wish and gives you the choice to run it into the ground and then scrap it, or sell it sooner if the market changes;

4)    There are no excess mileage charges that you get with lease agreements;

5)    May put you in a stronger position when negotiating with a manufacturer;

6)    You are tying up cash that could be used to better effect within the business;

7)    A shortage of affordable funding may make buying a vehicle unattractive;

B) Leasing

1)    Payment is made by monthly installments for a fixed period;

2)    There are 2 options:

  • Finance lease – where the company takes the residual value risk;
  • Operating lease – where the leasing company takes the risk. The most popular option is contract hire.

3)    Can be an easier way of sourcing vehicles;

4)    Company protected from residual value fluctuations;

5)    There are maximum mileage limits set, with excess charges if the agreed limits are exceeded;

6)    You are able to regularly change vehicles which is particularly attractive if you like a model with all the latest “toys” on it.

Outright purchase can work well for you if you have the time and skills to manage the process and have the cash available. Leasing works well if you don’t want to tie cash up in vehicles and want to change vehicles on a set regular basis. There is no right answer as it depends entirely on individual circumstances. The sums should be done on a vehicle- by-vehicle basis and should take account of VAT and first year capital allowance effects, particularly on low-emission models.

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