Unique Auto

Posts Tagged ‘business car leasing’

These days most company cars are financed by one of two methods: either outright purchase or on a leasing contract. There are pros and cons to each approach.

Purchasing Outright

The main advantage of outrignt purchase for businesses is that they own the vehicles. When the payments have been made on your car or van it belongs to you. This means that you can sell the car to retrieve some of the purchase costs or even offer the opportunity to purchase the vehicle to your employees.

One major disadvantage for many busienesses is the need to pay the full for the cars and vans. This can mean that you must bear some significant expense especially if your company operates a fleet of vehicles. Finding enough funds to purchase vehicles outright can cause businesses some unwanted cash flow problems.

Businesses must be prepared to cover additional expenses including maintenance, insurance and breakdown recovery.

Company Car Leasing

The key advantages of company car leasing to business are the benefits it brings to cash flow. The initial down payment can be very low and the monthly payments far less than the equivalent cost of a loan. This is the aspect of leasing that makes it so appealing to accountants. Prior knowledge of how much transport costs are from month to month makes financial planning much easier and helps cash flow.

Also, most leasing companies will offer to cover the costs of all vehicle maintenance as part of the contract. Suppliers will even offer to cover the cost of replacement tyres and windscreens in the leasing deal.

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.

One of the key disadvantages of leasing is that the car or van never actually belongs to your business. However many would see this as an advantages as your business doesn’t have to be concerned with the disposal of the vehicles when the lease expires or the vehicle reaches the end of its useful life.

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, however, a tax adavantage for your company as you can claim for the vehicle as a capital cost and offset this 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 currently a great deal of competition in the car leasing industry so shopping around is likely to get you the best deal possible. Lots of car leasing companies are offering free breakdown cover and will even negotiate flexible mileage plans as an incentive for your business. So the best advice is to do your homework and not to grab the first car leasing deal that comes your way.

From April 2009 it has been announced that there are new rules regarding tax relief on business cars. This could possibly make quite a difference to the capital allowances so it may be more practical to change your car sooner than you had anticipated.

This Pre-Budget report details allowances for cars are established on the vehicles carbon dioxide emissions. The ones mainly affected will be those acquired after the 31st March 2009 for companies and for sole traders and partnerships this will then apply after 5th April 09.

After April it will only be cars with co2 emissions that go up to 160g/km which will attract allowances at just 10%. Therefore buy a car before April and keep the higher rate of relief.

It is thought that even the more upmarket cars with emissions up to 160 g/km could be a better proposition to buy now. At present if you are contemplating buying a car which costs more than £12,000 writing down allowances will be curtailed to £3,000 a year. You will be entitled to a balancing allowance when you get rid of it. Long term the entire capital cost of the car is allowed for tax in its lifetime.

These new rules will remove the £3,000 limit plus the allowance. In the case of the expensive car which normally loses its value much more quickly than the rate of capital allowances, this will mean that there could well be a shortfall in allowances as in comparison to the cost of the car in its lifetime.

Under these new rules it appears that businesses that lease cars that are expensive should indeed benefit. The restriction on tax relief on lease rentals cars exceeding £12,000 will be replaced by 15% disallowance of lease rental payments on vehicles with co2 emissions that are above 160g/km. This will be regardless of their cost.