Is vehicle leasing the right option for your business?
The choice between purchasing a vehicle for your business or leasing one can be a difficult one to make. Purchasing one means that you own the vehicle outright but leasing can prove to be more economical. We think that leasing is the way to go for most businesses for a number of reasons, including reduced maintenance costs and the benefit of being able to drive newer models. Let’s run through some questions you should ask yourself to see if vehicle leasing is right for your business.
Choosing the right contract type
When you lease a car you have the option of choosing between two different contracts which help you manage exactly how you want the lease to work. There are two main contracts that you can choose between. A personal contract hire is one contract type which allows you to make a monthly payment to benefit from a new car every three to four years. A personal contract purchase is the second type of contract and this works in pretty much the same with the added option of purchasing your car at the end of your contract term.
Agreeing a lease period
In order to decide if leasing is for your business, you will need to think carefully about what you would like the lease period to be. Most leases run for three to four years, and during this period you would be expected to keep the same car, although this car will often be brand new. If you would like to update your vehicle more often than that then leasing might not be for you. Have a look at our blog post about why leasing might be more convenient than buying if you need more information before you make your decision.
Credit history
Having a poor credit history doesn’t necessarily discount you from being able to lease a car. It might mean that you have to opt for a personal contract purchase contract because those with a less than perfect credit history are more likely to be accepted for these because they are a full financial agreement.
Leasing payments are treated as an expense
Leasing a car can have benefits to your business when it comes to VAT and Corporation tax costs. A vehicle used solely for business use attracts no VAT payments on monthly leasing costs, this is reduced to 50% where a vehicle is used for both personal and business purposes. A business can also deduct the cost of any payments towards their lease before they calculate their liability for corporation tax, meaning that leasing a vehicle can help you save money on your tax bill. There is plenty of information about the tax benefits of leasing to be found online.
Cash flow
Whether leasing is right for you can depend on how you like your cash flow to operate. One of the benefits of leasing is that contracts demand a regular monthly payment as opposed to one large outlay of purchasing a car. This can be kinder on your cash flow because you know exactly where you are on a monthly basis.
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