Finding the right method to fund your fleet is an important business decision which can impact on valuable management resources in terms of time and money. From the time you spend managing the implications on staff taxation and company VAT, to the impact on monthly cash flow and the balance sheet, it’s essential to find the solution that works best for your business.

At Academy we understand that one solution does not fit all. That’s why we offer alternative ways to making an acquisition so you can select the one which best suits your unique financial and vehicle running requirements.

The following options may give you the opportunity to take a fleet of vehicles that might be financially out of reach if you were to purchase them outright. Our useful guide below provides a good insight into which would best suit your business plan, or alternatively call our sales team for more information and advice.

  1. Contract hire

Contract hire allows you to run your fleet at a fixed monthly rate for a set period of time and agreed annual mileage. Once your lease period is up you simply hand the vehicle back in the agreed condition and within the mileage parameters as stated in the contract.

The plus side

  • 50% VAT recoverable on monthly rentals for VAT registered businesses
  • No depreciation or vehicle disposal issues
  • Pooled mileage available (Minimum volume applies)
  • Rentals are allowable against taxable income
  • Improved cashflow and accurate monthly budgeting
  • Fixed cost motoring
  • Maintenance package can be added to include breakdown cover, servicing costs, tyres and MOT charges. 100% of the VAT can be reclaimed on this element.

The downside

  • The company will never own the vehicle as a balance sheet asset
  • There are penalties for going over agreed contract mileage and / or substandard return conditions

Find out more

  1. Contract purchase

Contract purchase is halfway between leasing and making an outright purchase. It’s very similar to contract hire in terms of upfront agreement of rental periods and mileage, but works as a conditional sale. This means that when your contract comes to an end, you have the option to return the car or purchase it based on the estimated value of the car at the end of your contract.

The plus side

  • Improved monthly cashflow helps accurate budgeting and forecasting
  • Offers the flexibility of a purchase option without being tied in to do so
  • Ideal if your company is unable to take advantage of the VAT benefits of Contract Hire
  • A suitable option if your fleet includes expensive vehicles (£25,000+)

The downside

  • Total fleet mileage cannot be pooled using this option
  1. Lease purchase

With this option we calculate the residual value of the vehicle for the end of the contractual period based on its retail value and depreciation. You can place a lump sum down-payment on the car and then make monthly payments for a set period (based on the difference between the retail value and the residual value). With Lease purchase you have a contractual agreement to buy the car at the end of the lease period by paying the final balloon payment.

The plus side

  • An ideal option to fund a prestigious, high value fleet which holds value
  • The vehicle can appear as a balance sheet item to be set against taxable profits
  • Monthly payments are typically cheaper than contract hire

The downside

  • You can only reclaim VAT if the car is used exclusively for business use
  • Depreciation and the costs of maintenance are your risks throughout the contract
  • Upfront commitment to purchase at the end of the contract with no option to change your mind
  1. Finance lease

A Finance lease works in a similar way to Contract hire, but the key difference is that the risk, management and maintenance of your fleet vehicles are your responsibility.

The plus side

  • You can add the value of your cars to your balance sheet, thereby increasing the net worth of your business

The downside

  • Vehicle maintenance and disposal is your responsibility

Find out more

Call our sales team today on 01942 408 521 for more information.

This article provides general information to be used for your reference only and is not intended as a substitute for financial advice specifically directed at your business and taking account of the particularities of your situation.