For businesses big and small, company cars and fleet vehicles help to keep their operations running smoothly in more ways than one. If you’ve been thinking of leasing or purchasing a car or a fleet for your business but aren’t sure where to start, we’re here to help you out.

Part business car leasing guide, part purchasing run down, we’ll take a look at what’s available to you with regards to both – so you can see which is right for you - below…

What is business contract hire?

Business contract hire is a long-term rental agreement that lets businesses of all kinds use a car or a van for a specific period of time at a fixed monthly price, usually for around two to four years.

How does business contract hire work?

When you choose to lease a vehicle for your business, you’ll pick the vehicle in question, then agree to an initial rental and annual mileage amount, along with how long you want to lease the car for. A credit check will then be performed to see if you’re financially eligible.

How to purchase a vehicle through your business

If you’re purchasing a car through your limited company, there’s a few things to be aware of from a tax perspective.

If you choose to take a loan out in order to purchase the vehicle, or the vehicle is purchased at the end of a hire contract, then it’s only the interest payments that are an allowable company expense. However, your company is also able to claim Capital Allowances to ease the cost of the vehicle, dependent on the CO2 emissions it produces as well as the date on which you bought it – generally, the more CO2 emissions your company vehicle, or vehicles, produce the more tax you will have to pay. For more information on how you can reduce your carbon footprint when using company cars and business vehicles, head here.

Any running costs of the vehicle, such as insurance and Road Fund License must be paid for by your company, although these will be deductible expenses for Corporation Tax.

Business car purchase vs. business contract hire: the pros and cons

When deciding which option is right for your business, you’ll have to factor in things such as your current business circumstances, its financial situation, and your own personal preferences. Of course, both options have their own advantages and disadvantages that you’ll have to weigh up too. These include:

The pros of purchasing a business vehicle

  • When bought outright, you won’t have to commit to any monthly payments.
  • Since the business owns the vehicle, it can sell the vehicle at any time. This money can then be put back into the business.
  • As the business owns the vehicle outright, there is no limit on mileage like there would be on business contract hire.

The cons of purchasing a business vehicle

  • As with any vehicle purchase, you’ll have to factor in depreciation. This can become a problem when it comes time to sell the vehicle once you no longer have any need for it.
  • Purchasing up front could leave you with less money to spend on the business elsewhere.
  • You’ll be responsible for its MOT, road tax, breakdown cover, servicing, repairs and maintenance, all of which can come at considerable cost.

The pros of business contract hire

  • The fixed monthly rentals over an agreed period make for easier budgeting, while the contract and mileage terms can altered if subject to agreement by the contract hire company.
  • Business contract hire is less intensive on your business’ cash flow, freeing up funds that you can funnel into other areas of the business.
  • Through business contract hire, you can easily change your vehicle every two to four years to ensure you’ll always have a top-of-the-range model – which of course means the latest technology, security, and safety features.
  • If you’re a limited company, you can recover between 50-100% of the payments and VAT against your corporate tax, provided that the vehicle is used solely for business use.
  • You can include maintenance and servicing in your maintenance and servicing, which spreads the cost and means less downtime for drivers. Taking out a maintenance package with your company vehicle also lets you claim back up to 100% of VAT on it too.

The cons of business contract hire

  • Because you pre-agree to an annual mileage amount, exceeding this means you’re liable for excess mileage.
  • At the end of the contract, the vehicle must be returned in good condition within fair wear and tear guidelines. You and your employees are therefore responsible for keeping it in good condition – if not, you’ll be liable for damage charges.
  • Should you opt to cancel the lease agreement early, you’ll have to pay early termination fees – keep in mind that this amount varies from lessor to lessor.