Buying a new company vehicle, what business considerations should I make?
You’ve decided now is the time to replace vehicles in your company, but what is the best way to fund it? What considerations do I need to make? What are the legal implications? … let’s dive in and have a look.
What are your most important considerations as a business?
Cost – cheapest overall ownership proposition
Image – matching the vehicle to your brand
Usage – selecting a vehicle that best serves your requirement for it
Environment – how efficient and which fuel
Management – looking after 1 vehicle is vastly different to 100
Funding – how to pay and obtain the vehicle
Cost – there are so many things to consider here, and it is a subject in its own right, but to summarise these are some of the considerations. Purchase price, lease payments, depreciation, maintenance costs, fuel consumption, tax and insurance. There is also the cost of finance and if using your reserves, the future value of that money. On top of that is how the vehicle is treated by you or your staff. When you pull this all together, if cost is you overriding consideration, then consider the overall pence per mile of the vehicle you choose.
Image – some companies pride themselves on always arriving on site to a customer in a clean, modern, efficient vehicle. Others treat employees or themselves for jobs well done with a nice new car. Just make sure that the vehicles you obtain match the persona and brand awareness of your company, it can, believe it or not potentially influence a buying decision or future relationship.
Usage – what is the purpose of the vehicle, how far will it need to travel on a daily, weekly or annual basis, what is it carrying, does it need to be modified to suit your particular needs, are there restrictions for its use (Clean air zones or size). Having an inappropriate vehicle may cost more overall, cause safety issues such as overloading and contribute to or against your employee’s well-being.
Environment – with the improvement in electrification of road vehicles and the tax benefits surrounding their purchase would your company benefit from going electric? If that’s maybe a step too far, which fuel and therefore environmental impact will you choose that is best for your company. Environmental sensitivity and ISO14001 could also have impact on your image - https://www.nextgreencar.com/
Management – as a company director or business owner you have many responsibilities concerning the use of a vehicle. It must be insured properly for the work its doing, it must be taxed and safe to be on the road, the driver must have a valid driving licence and be fit to use the vehicle. The law of use, cause and permit enforces the company to take its management of the vehicle and driver seriously. There is also legislation surrounding health, safety and corporate responsibilities. If you have one company vehicle it is quite easy to manage however if you run a substantial fleet you may need external help or employ a Fleet Manager to make sure all is running correctly- http://www.orsa.org.uk
Funding – We’ve left this one until last as it is normally the most pertinent question. How should I fund my vehicle? There are many methods but essentially it comes down to do I rent or do I buy?
Buying the asset or renting it
The biggest difference between leasing, loans, pcp, outright purchase, long-term rental and even paying ppm is whether the vehicle is on or off the balance sheet. You may have heard this term, particularly stated as a benefit from a leasing company, but what it essentially boils down to is whether you rent it or buy it.
Renting the vehicle (Rental, long-term rental and leasing) means you pay for the vehicles use through your normal overheads and when the term is up the vehicle is returned.
Buying the vehicle (Outright, Loan, PCP etc) means your company now owns it and the vehicle is shown on the balance sheet.
We asked one of our subscribers Tim Beighton at MPH Vehicle Solutions for his opinion;
"The one question that we get asked a lot is should I buy or should I lease. In short everybody is different and have different requirements so not one shoe fits all. Leasing is an ideal solution for many and if you would like a new(ish) car, change your cars on a frequent basis, need reliability, want to manage your costs then leasing is ideal for you. If you are looking to keep a car for a number of years, generally I would say more than 5 years, you don’t like the idea of not owning a car, It’s going to be used as a work horse so maybe get damaged! You are going to be doing very high mileage, then leasing probably isn’t for you. Compared to the cost of a new car and how quickly they depreciate leasing is a cost effective way of running a car, as Paul Getty once said if an item depreciates in value lease it, if it increases in value buy it."
Benefits of leasing:
· Fixed monthly cost – overhead to your business
· New or nearly new vehicle every (12-48mths)
· No depreciation, asset revaluation or disposal to consider
· VAT reclaim (50% on cars, 100% on commercials)
· Maintenance can be included
· Not using company reserves to fund purchase
Disadvantages of leasing:
· Mileage and damage restrictions
· Fixed term contracts
· Can cost more than buying and running ppm
· May require better credit ratings
Benefits of buying:
· You can negotiate discounts on purchase
· You maybe able to claim up to 100% of the cost against tax (depending on vehicle type and emissions)
· The asset is owned by the company and shows on the balance sheet
· It is at the company’s discretion when the vehicle is replaced
· Maintenance can be sought from cheaper alternatives
· No mileage or damage restrictions
· You can modify, within legal parameters, to suit the business
· Can be cheaper overall
Disadvantages of buying:
· You either tie up your company’s reserves to purchase or you pay to borrow the money.
· Depreciation, asset value and disposal are all your responsibility
· You may only be able to claim a smaller amount of capital allowance if you have a high emission or older vehicle
· May go out of manufacturers warranty and therefore any failures will be your responsibility
In conclusion, you need to find a vehicle that correctly matches your company’s needs. Once this has been identified you can investigate the funding options and then make an informed decision on which way best suits you. Alternatively, you could seek assistance from your accountant to work through which funding option best suits. Also please don’t forget your responsibilities to the company for making sure the vehicle is safe and legal to use.