What you need to know about leasing your fleet vehicles

In addition to managing your fleet in terms of servicing, maintenance, safety, routing of vehicles and managing fleet insurance, it's important to decide if you are going to purchase or lease your fleet. Essentially leasing your fleet vehicles is where you rent a vehicle, or fleet of vehicles, for a set period of time. It is different to daily or weekly rental and you pay a series of monthly payments for say 2-3 years, often including the credit-hire insurance, and then the car is handed back once the period is complete. Leasing vehicles gives you complete transparency on the total life cost of your fleet, whilst purchasing your fleet means that you can take full ownership of your fleet management.

Leasing your fleet vehicles will mean that you won’t have to tie up a penny more that you need in the purchasing of vehicles. You basically pay for the time that you use the vehicle, whereas purchasing means that you pay upfront for the entire cost of the vehicle. Whilst purchasing your fleet vehicles means taking ownership and recognising your vehicles as valuable assets to the business, you will also recognise significant depreciation of these assets very quickly.

What are the different lease options for your business?

Business contract hire is where you pay monthly instalments and hand back the vehicle once the period is complete. This tends to be the most common form of leasing, and there are many benefits to contract hire. In order to lease as a business you must be;

• A Sole Trader
• A limited company
• A partnership
• A VAT registered business
• An LLP
• A PLC
• A charity
• A Local Authority
• Central government
• An embassy

A business finance lease is a little bit different by being more flexible and at the end of the contract where you can either hand the car back, sell the car on and use the equity to pay off the final slightly larger payment, or continue to use the vehicle and pay the same monthly payments.

An operating lease is less common nowadays and is pretty much the same as business contract hire, other than you are responsible for taxing the vehicle a year after holding an operating lease.

Advantages to leasing fleet vehicles

As highlighted above, there are many benefits to leasing your business vehicles, however one of the main benefits is tax related. As a business you will gain tax benefits that an individual wouldn’t by leasing privately as well as the lease being “off balance sheet” (at least until 2019). So if you are leasing your vehicle through a VAT registered company you can claim back 50% of the VAT on the monthly payments for a car and 100% on a van.

However, if the vehicle is also used for personal use the VAT cannot be claimed back, but you can then claim for the monthly cost of the lease against profits. This varies depending on the vehicle emissions, if more than 160g/km then you can claim 85%, and if less than 160g/km you can claim 100% back.  You are also exempt from company car tax if you are a partner or in a partnership, are a member of a limited liability partnership, or you are a sole trader.

Disadvantages to leasing your fleet vehicles

You should also be aware that there are some weaknesses to leasing your fleet vehicles and it may not fit in with your company’s ethos or way of doing business. Firstly, of course, you won’t own the vehicles. This can sometimes be a disadvantage if you are interested in holding business assets or need to add livery and branding to your business vehicles. You will also find that the leasing company will add mileage and condition restrictions to your contract agreement, so if you go over the agreed mileage or hand back the vehicle in poor condition then there will be charges accrued. Finally, a lease is usually required to meet a set period of time, which isn’t designed to be finished early. There are often cost implications if you wish to settle a lease prior to the agreed date.

Should you lease through a dealership or broker?

This completely depends on your priorities. A dealership can be good if you are set on a specific brand of vehicle. You will get a retail discount and are likely to be able to drive a vehicle away the same day, but you will need to negotiate any volume deals yourself.

A broker, however, can offer impartial advice and act as the middleman between yourself, the dealership and the finance provider, although you will be met with additional admin fees. A broker will normally be able to access additional discounts that dealerships are unable to and they can do some shopping around, offering advice where they can.