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Purchase or lease?
The way in which your fleet is funded can have a major impact on operating costs, and different funding options offer varying solutions dependent on usage patterns.
The vast majority of cars used for business are acquired either through outright purchase, leasing or some form of opt-out/ cash allowance system. Choosing the right method is essential to help minimise your costs.
Outright purchase
Outright purchase, where a company uses its own cash to fund the fleet, historically has been the predominant funding method.
For an organisation with the cash to do this, and a fleet manager with the expertise to negotiate, purchase, maintain and insure the fleet, as well as oversee effective disposal, this can still work well. The benefits for larger fleets include substantial buying power, complete flexibility on acquisition and disposal and, in some cases, enhanced asset value.
But it can be a costly exercise – you have numerous depreciating assets on the balance sheet, and you are exposed to residual value fluctuations at resale. Added to that, of course, is that outright purchase demands that you must be secure financially, with the liquidity to tie large amounts of capital up in the purchase of cars.
Contract hire
The advantages of contract hire mean it has overtaken outright purchase as the most popular funding method because it poses significantly less operational risk to the operator. Residual value and disposal risks are eliminated as both are taken on by the leasing company and packaged as part of the monthly rental.
Contract hire is also highly tax-efficient, particularly for cars with CO2 emissions of 160g/km or less: since April 2009, new rules mean that for these vehicles 100% of lease rental costs can be offset against corporation tax. Also, most companies can claim back a proportion of the VAT charged on the finance element of the monthly rentals as well as all the VAT on the service and maintenance part of the rental, if you choose to include this in the monthly charge.
A further advantage is that because vehicles do not appear on the balance sheet, financial ratios can be improved and working capital freed up for other purposes.
Cash for car: calling in a troublesome policy
Paying employees a cash allowance in lieu of a company car has become popular in recent years, but such calculations generally have been made when the economy looked rosier.
Drivers often saw flexibility and personal choice as more important than a rigid company car policy, but so-called ‘grey fleet’ vehicles have presented new problems: in tougher times, how many drivers will have their cars repossessed, fail to be properly insured for business use or ignore important maintenance schedules? Worse still, duty of care obligations mean that, when these cars are used by drivers on company business, it is the fleet, rather than the individual, that bears full responsibility.
The recession presents a strong opportunity for you to bring these vehicles under your control, so satisfying duty of care issues and eliminating cash for car payments and replacing them with more tightly controlled costs negotiated under your company car policy.
Further information Finance & Leasing Association
The body which represents organisations offering credit and leasing. The site also gives customers impartial advice and sets out financial codes of practice.
Company car tax
www.direct.gov.ukGovernment information on Benefit in Kind company car taxation and fuel benefit, with advice on who is liable and how the calculations are made. Includes a tax calculator and advice on vehicle CO2 bandings.
The Audi Business Library
The internet has become integral to all our working lives and it provides a wealth of information for the fleet manager. But its scope can also be a hindrance; just where exactly is all the information you need? We've together a of useful document to provide you with access to important information, advice, service and news.
