Fleet News

Funding: Leasing benefits stretch far beyond cost savings

By Darren Shaw, director, County Finance Group

So why is leasing the best way to finance a fleet?

Many will often say it simply lowers the monthly cost of a vehicle, but in reality the benefits extend further than just reducing cost, from tax savings right through to the reduction of maintenance expense and services.

Even for businesses with an ample surplus of cash, leasing could actually be the best option for those companies looking for the most proficient vehicles at their disposal, without being tied into ownership.

One of the obvious main advantages of leasing over purchasing is that it removes the contentious issue of depreciating assets.

The value of new vehicles can plummet rapidly, as much as 40% in the first year, and no one wants to own a depreciating asset.

It is also a cost-effective option for firms in the short term – monthly lease payments will often be a lot less than hire purchase costs.

In addition, the initial deposits can be just three months’ rent, whereas buying outright can often involve an upfront payment of as much as 20% of the total cost.

Not only does leasing keep costs down, but it is also tax efficient.

New legislation around low emission cars has pretty much constrained a large proportion of cars to benefit from the capital allowances scheme, yet lease payments are actually tax-allowable expenses.

Businesses can reclaim 50% of the input VAT on monthly payments, and the whole monthly lease costs immediately become allowable as a deductible expense.

Choosing the right way to finance a fleet can often be a challenging process, and many firms may worry their balance sheet may forfeit their chances of obtaining a much-needed new fleet of vehicles.

But they shouldn’t be pertained, some finance houses will, in fact, base their decisions on cashflow and capital assets, rather than liabilities.

This paves the way for a brand new fleet at repayment periods more flexible than many vehicle leasing firms.

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