Lease Your Next Company Vehicle

Many companies prefer leasing vehicles, equipment or tools, as this can be a more cost-effective alternative to direct purchasing, especially when you are starting out.

But which one is more suitable for you - financial or operating lease?

Operating lease

An operating lease is a contract that permits the use of an asset without transferring the ownership rights of said asset.

Advantages

For a relatively low initial payment, followed by regular monthly payments, you get all the benefits of running a brand new vehicle. This includes a full manufacturer's warranty, which usually lasts two to five years.

A lease is an attractive option for tax reduction, as many companies can claim back part or all of the VAT that is included in monthly payments. The exact figures depend on the VAT scheme to which your business belongs, but usually, companies can claim back 50% VAT if the car is used for mixed private and business purposes, and up to 100% for vans.

If you rent a car with low emissions, you can claim 100% of the financial component of the rental costs against your annual taxable profits. If your car produces more emissions, then you can only claim 85%.

Lease agreements may have service and maintenance added to the monthly package. This will allow you a better prediction of driving costs and avoid the unpleasant surprises of unexpected repair bills.

Most lease contracts now offer a degree of flexibility at the end of the lease, allowing you to choose between buying the vehicle directly, refinancing, or simply returning the vehicle.

Disadvantages

You do not own the vehicle, the owner remains the lessor.

The annual mileage is one of the main factors that determine the cost of leasing a new vehicle - the more kilometers you drive, the more expensive the monthly payment will be.

Financial lease

Advantages

The price of the vehicle may be more interesting compared to operating leases.

The vehicle is the property of your company and will be depreciated annually. The amount of tax depreciation depends on the car's emissions.

When buying a car, there are only a few exceptions for which a VAT refund can be applied, but in most cases, this is not possible.

There are no mileage restrictions when you own a vehicle.

Disadvantages

Vehicles lose up to 40% of their value during the first year and half of their value during the first three years. (Source: AA)

The car owner is responsible for repairs and maintenance.

You need more capital for the initial payment.

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Please note that this article is for general information purposes only. It is advisable to seek professional financial advice before starting any saving or investment decision.