Cutting Costs for Company Cars

Sep 28

Cutting Costs for Company Cars

Company car leasing is an increasingly popular way of obtaining a vehicle or vehicles for a business.  It is proven to be cost effective, and it can be very easy to manage especially if the firm providing the vehicles takes on that responsibility.

Any reference to leasing usually means contract hire – in other words, the company requiring the car takes control of it for a fixed period of time, making regular payments throughout the contract period.  At the end of the contract, the car is returned to the lease company.  The fact that a vehicle is leased rather than bought offers a number of opportunities to save money.  That sounds a little bit counter-intuitive, as any form of funding will add both interest and margin to the costs, but then this has to be weighed against the opportunity cost or ‘internal rate of interest’ on the cash used up to purchase the asset.  So how does it work?

To begin with, leasing companies generally have excellent purchasing power.  They probably deal with a number of firms and buy a large number of cars each year, so they expect and obtain a volume discount from the manufacturer, added to which may be additional terms for your own fleet.  As the owners of leased assets they are able to buy the cars without VAT and are also able to claim Capital Allowances against their Corporation Tax.  This means that the rentals are cheaper than the equivalent purchased costs.

For the company who leases the cars, they don’t have to use up capital to purchase the vehicles, so this can be used elsewhere in the business.   If they are VAT registered, they can also reclaim 50% of the VAT paid on the finance rentals and 100% on any maintenance packages.

Full maintenance packages make sure that everything is taken care of, from regular servicing to breakdown cover, while others may only contain elements limited to specific client requirements.  Again, the volume discounts obtained by the leasing companies and their expert management of servicing agents mean that the cost of maintenance is minimised.

Once the company car leasing period is up, the car is just returned to the leasing company.  There is no option to purchase it outright under this scheme, it is just handed back and a new contract may be taken out if required.

The actual lease costs will depend on a variety of factors.  The model and specification of the vehicle will play a part, as will the mileage driven – a lower mileage will attract a lower cost, but anyone exceeding that may find that penalty charges can be quite steep.  For those reasons, it is best to discuss any requirements in detail with the company car leasing company before committing to a contract, and maybe negotiate a pooling arrangement if there are several cars to be replaced.

 

Attribute to: Jag Ture

Jag has been writing about ways to improve business efficiency for over five years. Her marketing and business development background has helped her write informative articles about the latest information technology that can help make a real difference to the way some businesses perform.