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Leasing Company Cars or Vans

should i get a personal contract purchase or hire purchase agreement when buying a car?
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What are the benefits to leasing company cars?

Leasing company cars and vans instead of buying them outright brings with it a number of benefits, especially when finances are tight. By leasing your vehicles – which basically means renting them from a company for a monthly payment – you can get access to brand new cars and vans without having to part with a huge lump sum up front.

It may be easier to find a few hundred pounds a month than tying up tens of thousands that could instead be invested elsewhere in the business.

There are also various tax benefits associated with leasing company cars; depending on the type of scheme you opt for.

Leasing payments are tax-allowable expenses and will help you reduce your bill. A VAT registered business can reclaim 100 per cent of the VAT if the car is used solely for business and 50 per cent on the finance element if the vehicle is also used privately.

Here’s a brief look at some of the options available.

Contract Hire

This is the most popular choice with businesses, ideal for those who want to regularly update their fleet.

You pay the car finance company a fixed monthly sum to lease a vehicle for a fixed period, which may include service and maintenance costs. At the end of the term the vehicle is returned and you can get a new one.

Payments are calculated based on the depreciation, taking into account age and mileage.

VAT-registered companies can reclaim up to 50 per cent of the VAT on finance payments and 100 per cent on maintenance agreement costs.

With contract hire you need to be able to accurately predict your expected mileage and there is no option to buy the vehicle at the end of the term.

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Contract Purchase

This includes the option to buy the car or van at the end of the contract for a pre-agreed final payment. A minimum guaranteed future value is calculated to secure ownership so you don’t have to worry about depreciation; if it has depreciated below the set value the car can be handed back.

With contract purchase, vehicles appear on the balance sheet as a depreciating asset allowing you to claim capital allowances of 25 per cent a year.

VAT can only be reclaimed on rental payments if the car is used for business purposes alone.

Sale and Leaseback

If your business needs to release funds, you may be able to sell your existing fleet to a finance company and rent them back again.

This releases capital and removes depreciating assets from the balance sheet.

Employee Car-ownership Schemes

These are complex and offer tax benefits to the employee but can also work out cheaper for the business, especially if the fleet is large and staff turnover low.

There are other associated benefits of car leasing, particularly when leasing a new vehicle.

Because the vehicles are under warranty and a maintenance plan can be included in the repayments, you should always know what your monthly outgoings will be – even if there is a fault or breakdown.

New cars are also typically more efficient to run, can boost staff morale and present a good image for your company.

 

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About Linda Ram

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