As an SME business owner, you should already know that you need to carefully manage your funds and save money where you can.
By choosing to lease your company cars rather than owning them, you can maintain a healthy cash flow, save money on tax and enjoy new vehicles every few years.
Car leasing is essentially a car rental agreement where your business leases one or more vehicles at a fixed monthly rate and over an agreed period of time. At the end of the lease, you simply give the vehicle back to the leasing company and start a new lease so that you can acquire another set of new wheels.
So is it really better for your small or medium-sized business to lease a company car? Let’s take a look at the main benefits of business car leasing for SMEs.
Avoid commitment to a depreciating vehicle
As you won’t actually own the vehicle, you never have to worry about selling on a depreciating car when your agreement ends. You just return it to the leasing company who then takes on the risk of the resale. So, in addition to getting the benefits of a brand new car, you can avoid losing money on depreciation costs because the vehicle isn’t yours to sell.
Claim back 100% of the VAT
If you’re VAT registered and the leased vehicle is used solely for business, you can reclaim 100% of the VAT. This means that you cannot use the car to make any personal journeys. But if you’re like most SME business owners who use their company car privately as well, you can only recover 50% of the VAT.
Liberate money for your business
Purchasing a new car for your business takes up a huge chunk of your budget, whereas leasing means you only need to commit to paying a fixed monthly cost. By choosing to lease, you can better manage your cash flow and free up more money to spend on other things that will benefit your business. Plus, business leasing gives you more flexibility when the time comes to upgrade your company car.
According to Toomey Leasing, the cost of buying a car outright is causing headaches for businesses in the UK. The independent leasing company also says that leasing is a cost-effective solution that requires very little financial planning as you only need to decide which services – such as maintenance and admin options – you want to include in your lease plan.
Regular upgrades
When you buy a new car for your SME, chances are high that you’ll drive it for many years before even thinking about getting an upgrade. But the older your car gets, the less reliable it becomes, which means you’ll probably end up spending a lot of money on repairs over time. One of the great things about leasing is that you can have the latest model from your preferred manufacturer every 2 to 5 years. What’s more, you can drive a better vehicle of a higher spec than you would had you bought one.
Tax relief on business car leasing costs
If you lease your business vehicle, the monthly lease payments can be claimed as a business expense. There are, however, some conditions that you need to consider. For example, if you choose a car with CO2 emissions over 110g/km, 15% of the cost is not tax deductible. Also, the leased car must be used entirely for business purposes in order to be considered a business expense.
