These days most company cars are financed by one of two methods: either outright purchase or on a leasing contract. Each has its pros and cons.

Outright Purchase

The main advantage of outright purchase is ownership. When the car or van has been paid for it belongs to your company. This allows your company to sell the vehicles in order to retrieve some of the purchase costs and you may even offer the cars and vans to your employees.

The biggest disadvantage for most companies is the need to pay the full cost of the car or van, either as a one off payment or by means of a finance plan. And if your company runs a fleet of cars and vans you will have some significant expense. Cash flow is a top priority for many businesses in the current credit crunch so this often concentrated transport expense can be too much to handle.

There are, of course, additional expenses that need to be paid including maintenance, insurance and breakdown cover.

Business Car Leasing

The key advantages of company car leasing to business are the benefits it brings to cash flow. Initial down payments on comapny car leasing deals is usually very low and the monthly payments are generally very affordable. This is why leasing is so popular with company accoutants. Knowing how much transports costs are from month to month makes budgeting and financial planning so much simpler.

Also, most reputable leasing companies will offer to include the cost of all maintenance in the leasing contract. They may even ofer to include broken windscreen cover and replacement tyres.

Although car insurance is not normally included in the lease contract it is often offered by the leasing company as an optional extra which, if accepted, is generally cheaper than it would be if purchased separately.

A key disadvantage of car and van leasing for many businesses is tha the vehicle never actually belongs to them. Many businesses would actually see this as an advantage as it means they don't have to concern themselves with vehicle disposal when the lease expires.

Another potential disadvantage is how the UK government considers a company car as benefit in kind which makes it taxable and that tax is derived from the driver. Recent UK  tax changes mean that a higher rate of taxation is applied to company cars. There is a small tax advantage for your business as you can claim for the cars and vans as a capital cost and this will be offset against your company profits.

Clearly there are many factors to bear in mind when a company is considering either to lease vans and cars or to purchase them outright. There is also a great deal of competition in the car leasing industry so it is well worth shopping around for the best deal. Many leasing companies provide additional incentives such as free breakdown cover and even flexible mileage plans. So the best advice is to do your homework and not to grab the first car leasing deal that comes your way.

Be Sociable, Share!

•