Car Leasing

Clem, Are you talking about a vehicle for business purposes (ie a van) or are you talking about a company car? Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

James: I am about to lease a van for my business and someone metioned that you can claim back the cost of the van. Is this true or is someone just having a joke. Thanks Wilma

Don't lease, or get into credit especially on a car when starting out. Use your own car and invoice your company fairly until you get going. Regards good luck brian fin on
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Brian Fin

www.businessbx.com

www.courtico.com
on

If you need an edge when speaking to the leasing company. That is if you really need to lease, then listen carefully. Get the dealer to give you a 'buy back' option in writing were they agree to buy the car back say every 6 months running at specif KM etc. Then give this letter to your lease company as some sort of guarantee, they usually accept it, also if the dealer refuses, he then has no confidence in the resale value of his car. So buy through one that has. Brian fin on
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Brian Fin

www.businessbx.com

www.courtico.com
on

Wilma There are various options with VAT reclaim and capital allowances depending on the type of lease you are taking out. You can "claim back the cost" because this is a business expenditure, but not all on day one. Leasing is in general a very complex area from both a business and a tax perspective, and on balance unless you have severe cash flow issues which make an outright purchase impossible I would steer clear if you are a novice in this area. I have been involved in leasing a number of times when I worked in industry and always felt we got a raw deal vs buying vehicles outright (especially buying 1-2 year old vehicles). If you don’t have the cash (and lets face it not many start ups do) it can be a good thing if you understand what is going on and how leasing co’s make their money, which is often at the end of the lease term. Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

James, I was referring mainly to a company car. Vans will be required at a later stage. I gave my company car back when I left my full time job last July. I have since been working for one of my future customers until my business gets up and going properly. I currently have the use of a 'pool' car which I will also have to give back at the end of June when my company starts. Regards, Clem.

Clem, Re company cars you will need to get your calculator out on whether it is worthwhile or not to take a vehicle into the company vs using a private vehicle. As you are no doubt aware having had company cars the personal taxes alone are rather steep, and you may be better placed to buy (say) a two year old vehicle privately using a personal loan and claim mileage allowance at 40p/mile from the company. It will depend on the mileage you are doing and the value and emissions of the vehicle and of course whether you like to have a new car or not. The leasing industry has recognised this and you can actually now get private leasing to individuals so you can lease and keep the car out of the company if you so desire. Let me know if you need some help with the math. Regarding any negotiation edges, for contract hire as opposed to finance leases, the exit fees are seemingly where you get stung the hardest - these are the clauses to look at in detail. Often you get hit with excess mileage claim or additional monthly premiums to continue using the vehicle beyond the standard 100k/3 yr life which mean you end up effectively paying for the thing twice. (The comparative computations they show you upfront are based on your meeting the 100k/3yr thing to the month and the 1000 mile, which lets face it isn’t going to happen – if you buy privately and you are still using the thing after 3 years, then you don’t pay for it again…) Other areas of avoid are the ones where they organise all the repairs etc - they can exceed main dealer costs let alone what you could negotiate with a local garage, as the leasing company is generally taking a backhander for placing your business with the garage. You aren’t going to have much buying power with getting just the one vehicle, so don’t expect a great deal. If you are going to do it, then finance leases tend to be less painful in the long run as you are actually buying the vehicle and all it is is a glorified loan. Anyhow I personally wouldn’t get involved - its a messy area. The management time alone to get a good deal is excessive, and could be better spent IMO. But then again I have had bad experiences with leasing companies in the past, and had to make the best out a fairly large fleet under a deal that was imposed so I am rather biased against the buggers. I tend to see it as complicating the arrangement, and not really adding any value unless you are really short of cash – and if that is the case why are you buying a new car instead of a second hand vehicle? Rant over! Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

James, Thanks for this. It does make you think really. My main concerns as far as buying personally then claiming back are that i'll be doing about 25000 miles a year. After two years the value i'd lose on a car will be massive after adding 50k miles onto the clock. I would also need to get a personal loan in order to place a deposit and there would also be the repayments to meet. All of this being on a 'personal' basis. I just thought that things would be simpler to lease a car for 2 to 3 years adn then give it back and get another. What I would like to do is get a basic car - after 6 - 8 months I would give this car to my Office Manager and get a new lease on something a little nicer for me. Basically keep the cars flowing down the chain until their leases are up and they go back. This way everyone gets a car of varying quality on a relatively regular basis. All of this being secured through the company. Am I going down the wrong road here (no pun intended) or am I still being realistic do you think? Clem.

Steve: reference your last post this is the same reason that I contract hire our vans. It cuts down cost,in that if I was to buy our vans they would greatly reduce the value of the van with the amount of miles that we do and after the two to three years you get a new vehicle without the worry of having to sell the vehicle. All the best Derek

I see where you are coming from clem, but it all comes down to running the numbers to see what the difference is financially and then looking at the different sorts of hassle of having leased vehicles vs privately owned vehicles, and then making a decision based on these two things. Generically with hefty mileage like that leasing may make more sense - but you will pay for the depreciation through the monthly premiums – the leasing company will set their rates based on targeted mileage if you are going for a contract hire option so it isn’t really going to make much difference either way. I know a lot of lease/buy decisions come down to personal choice, and I know the thought of driving around in a new car every 6 months is appealing, but from a tight assed bean counter point of view it isn’t necessarily the best value option. There are so many complications (VAT, corp tax, income tax) that no one case will fit all. In general the case for company vans is somewhat better than for cars as the personal tax is relatively minor, but my gut reaction is that people lease because they like to get a shiny new car, not because it is tax or cash flow efficient. Would for example buying (even via the company) a one or two year old 'repmobile' with say 20-30k on the clock make more financial sense than always going for new vehicles? You could do this privately or via the company, and these sorts of cars really are dirt cheap and no harder to buy than taking on a lease. Given you are presumably going to put 75k on the things it isn’t going to make much difference for most of the cars life whether it say 25,000 or nil to start with on the clock, alt