These days most company cars are financed by one of two methods: either outright purchase or on a leasing contract. Each has its pros and cons.

Outright Purchase

The main advantage of outright purchase for businesses is that they own the vehicles. When the payments have been made on your car or van it belongs to you. This means that you can sell the car to retrieve some of the purchase costs or even offer the opportunity to purchase the vehicle to your employees.

The key disadvantage of outright purchase for most companies is that you must pay the full cost of the vehicle, either as a one-off lump sum or spread over an agreed period. This can mean significant expense, particularly if your company runs a fleet of company vehicles. Cash flow is a top priority for many businesses in the current credit crunch so this often concentrated transport expense can be too much to handle.

Businesses must be prepared to cover additional expenses including maintenance, insurance and breakdown recovery.

Company Car and Van Leasing

The key advantages of Business Car Leasing to business are the benefits it brings to cash flow. Initial down payments on company car leasing deals is usually very low and the monthly payments are generally very affordable. This is the aspect of leasing that makes it so appealing to accountants. Knowing how much transports costs are from month to month makes budgeting and financial planning so much simpler.

Also, most reputable leasing companies will offer to include the cost of all maintenance in the leasing contract. They will even offer to include replacement tires and windscreens in the lease contract.

Although car insurance is not normally included in the lease contract it is often offered by the leasing company as an optional extra which, if accepted, is generally cheaper than it would be if purchased separately.

A key disadvantage of car and van leasing for many businesses is that the vehicle never actually belongs to them. However many would see this as an advantages as your business doesn’t have to be concerned with the disposal of the vehicles when the lease expires or the vehicle reaches the end of its useful life.

Another potential disadvantage is how the UK government considers a company car as benefit in kind which makes it taxable and that tax is derived from the driver. Recent UK tax changes mean that a higher rate of taxation is applied to company cars. However there is a tax advantage to the business who can claim for the car as a capital cost and offset this against profits.

Clearly there are many factors to bear in mind when a company is considering either to lease vans and cars or to purchase them outright. There is currently a great deal of competition in the car leasing industry so shopping around is likely to get you the best deal possible. Lots of car leasing companies are offering free breakdown cover and will even negotiate flexible mileage plans as an incentive for your business. So the best advice is to do your homework and not to grab the first car leasing deal that comes your way.

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