Whether in boom times or a recession, successful small businesses will be those which scrutinise their spending and ensure that monies spent bring big gains for their organisation. Many of the country’s SMEs are reliant on vehicles as an integral part of their business, whether for deliveries or sales calls. Not only are these vehicles the public face of the business but they must also be reliable and efficient to run in order to meet delivery and appointment deadlines.
Leasing vehicles provides a good alternative to avoid tying capital up in the company’s fleet and being stuck with ageing vehicles which are depreciating in value. Leasing can offer other financial benefits too. Intrepid Security Solutions has dealt with CCLeasing for around 15 years for their car or commercial vehicle fleet and says, “They take the time and trouble to understand our business so that we benefit from tax and VAT matters related to our fleet and will also assist at any point throughout the contract in the disposal or transfer of our vehicles.”
There are two types of lease available to commercial users:
Finance lease
With a finance lease you choose to pay either the entire cost of the vehicle including interest charges over an agreed lease period or opt to pay lower monthly rentals with a final payment based on the anticipated resale value of the vehicle. The user benefits with a fixed cost but does take on the administration and operating risks, such as unexpected maintenance repairs and losses in residual value.
At the end of the contract you can continue to operate the vehicle for a nominal fee.
Contract hire
Contract Hire is a popular way of hiring a business vehicle, whereby a vehicle is leased to a business for a specified time and mileage in return for an initial fee (typically equivalent to 3 monthly rentals) and a subsequent monthly charge.
This type of hire removes many of the risks associated with vehicle ownership, such as depreciation, servicing costs and eventual sale. However, the hirer could lose any potential benefits of vehicle ownership such as running costs or an unexpected upturn in the residual value a particular vehicle.
A contract hire vehicle does not have to be shown as an asset on your balance sheet because it is owned by the leasing company. Some or all of the rental charge can be offset against taxable profits.
Experts say that the VAT rises have impacted the amount of working capital available to SMEs, so leasing becomes more attractive as it generates a smaller VAT bill than purchasing a vehicle. Contract hire and finance lease customers can reclaim 100% of the VAT on commercial vehicles and sole use company cars. 50% VAT can be reclaimed on cars used for work and personal use.
So if you’ve decided that leasing is for you, how do you go about getting the best deal and what should you consider? Whyte & Co, provides an insight, “Choose a company that offers a great overall package, more than just leasing. When we wanted to swap to leasing CC Leasing valued our vehicles, sold them for us and provided us with a good return. When we want something quickly CC Leasing come up with three or four options at competitive rates and deliver speedily according to our specifications.”
Other points to consider include:
- Contract hire vs finance lease
- Initial deposit
- Monthly price
- Contract period (this can be between 24 months and 60 months)
- Vehicle specification
- New or lightly used vehicle?
- Do you want the running costs to be included in the monthly price?
- Road tax
- Mileage restrictions
- Extras the lease company offers eg advice on VAT
Author: Mike Moylan, managing director of CC Leasing