Finance Options - What Finance Package Suits You?

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Finance Option

Whether you’re cash rich, or you want to manage your cashflow,  just what is the most efficient way to fund your much-needed new car or van?

The good news is that there are at least five different options, so read on to find the one that’s most suitable for you and your business.

Here are 6 key points to think about:

Watch your cash flow
Save money – will your current van do the job?
Daily rental provides pay-as-you-go use but comes at a cost
Lower monthly payments with contract hire and finance lease
Maintained contract hire can give you 'fixed cost motoring' including servicing, tyres and repairs.

Why should you read this?

You’ve just started your own business
You need a van for the business
You want to know the options for funding the van
What about the VAT?

 

1) The obvious: outright purchase you would think that buying your new business van direct from a local dealer is certainly the simplest route. REALLY?

You would think that buying your new business vehicle direct from a local dealer is certainly the simplest route, this is not always the case and not normally the most cost effective due to their massive overheads. Also finding the ready cash can be diffcult and putting ot on your overdraft facility or taking out a loan can predjudice credit rescources which you may need for other uses.

2) Contract hire with maintenance

This is a very straightforward solution. Following a low deposit of normally three months’ rentals, you pay a fixed monthly fee. 

The rentals payable are 100% tax efficient which means you can offset the full cost against your taxable profits.

There are no unexpected maintenance costs and even the Vehicle Excise Duty is taken care of during the contract.

At the end of the contract, you simply hand the van back and take delivery of a shiny new vehicle as its replacement.

Make sure you’ve looked after it though as the contract hire company can ask you to pay for any damage or neglect that would not be considered fair wear and tear.

3) Simply contract hire

Contract hire is also available without the maintenance element. The rentals are cheaper but be warned, you’re liable for all maintenance and repair costs.

The rentals payable are 100% tax efficient which means you can offset the full cost against your taxable profits.

The fair wear and tear conditions still stand, and the penalties can be high so make sure you understand your obligations.

4) Finance leasing

Like contract hire you pay an initial deposit and followed by a fixed monthly payment.

But this time there is a payment at the end of the lease – normally less the van’s projected value. This is offset by the sale and the proceeds being returned to you.

Just like contract hire the rentals payable are 100% tax efficient which means you can offset the full cost against your taxable profits.

If you want to, you can have the final payment, known as a balloon payment,  varied or reduced to zero (fully amortised) but the monthly rental will then be higher. On the plus side, you’ll walk away with a ‘profit’ of whatever the van is sold or part exchanged for.

This can work as a blessing or a curse. Keep the van in good nick, don’t overdo the mileage, and the resale value of the van can be higher than the projected ‘balloon’ so you make a return.

But if the resale value is less than the balloon, you have to pick up the difference.

As with contract hire you are responsible for the maintenance and repairs, common sense would tell you that the nicer condition at the end of the lease the higher the value the vehicle would have.

So your decision may well come down to knowing how the van will be used.

5) Hire purchase

Good, old fashioned hire purchase is a safe option but not always the most tax efficient

Effectively, you agree to buy the vehicle over a period, anything from 3 to 5 years, paying by fixed monthly installments.

At the end of the period you make a final payment and can then dispose of the vehicle or keep it on.

And of course, you’ll be responsible for maintenance and repairs as well as Vehicle Excise Duty.

What else?

It may seem obvious but in all cases, you’ll be responsible for insuring and fueling the vehicle.

Finally, a note about VAT. If you are VAT registered you can reclaim VAT in full whether you buy or lease the van. With a car you can claim 50% of the VAT paid

If you contract hire or lease it then the VAT on the rental is reclaimed when you make your periodic return.

If you buy or hire purchase, then you’ll have to pay the full VAT upfront and then reclaim it on your next return.

Of course, no VAT registration means no VAT reclaim. BUT, if you contract hire or lease, you pay VAT on each regular payment rather than all of it upfront You can even offset the VAT element against your taxable profits.

With interest rates typically at 5 per cent, you could be as much as £1000 better off if you lease a £20k van over 3 years, assuming a resale value of £5000 at the end of the lease.

Call us on 01446 773098 direct and we will happily explain each funding method and will will find the right arrangement for your needs.

 
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