Business Leasing vs Buying
Whether a business should lease or buy a vehicle can be a tough choice, but to help you decide, we've compiled a list of the pros and cons of business leasing and buying to show you why leasing could be a better choice for your business and help you save money.
Should I lease or buy a business car?
Whether you lease or buy a company car comes down to the circumstances of your business. From available disposable capital to budgeting needs to what’s included, each will play a part in your decision-making on whether leasing or buying is right for you. Way up the pros and cons for your business to make a decision.
Benefits of leasing a business car
Here are the key advantages to leasing a business car:
- Fixed cost motoring allowing for monthly budgeting
- The most cost-effective way to drive a new car
- Low upfront costs so you avoid using business capital
- Avoid owning a depreciating asset
- Drive a new vehicle every two to four years and stay on top of safety and tech releases
- Road tax included as well as a manufacturer warranty and breakdown on most vehicles
- Maintenance packages and insurance can be included
- VAT payments are 50% reclaimable for business and personal use and 100% reclaimable for sole business use
- Maintenance VAT fees are 100% reclaimable
- Low BIK rates for vehicles with low CO2 levels
Things to consider before leasing a business car
But here’s what you should consider before leasing a business car:
- Vehicles which produce high levels of CO2 will have a high BIK tax
- Employees may be annoyed if they can’t have the car they want
- You don’t own the vehicle so can’t sell it
- If an employee leaves the company, the business is responsible for the vehicle
- If mileage is exceeded, a fee will be charged
- The agreement is set for a specified time and can’t be returned beforehand
- The employee will need to take care of the vehicle to avoid charges
Benefits of buying a business car
Here are the key advantages of buying a business car:
- The business owns the vehicle and can sell it at any time
- No monthly payments if paid in full
- No mileage limits
- No charges for damage
- You might be able to negotiate on price
- You can modify the vehicle how you like
Things to consider before buying a business car
What you should think about before buying a business car:
- Cars quickly depreciate, typically by 60% in the first three years
- VAT will need to be paid on the price of the vehicle and can only be reclaimed if used exclusively for business use
- If financing, it will likely be more expensive than leasing
- Businesses spend a large amount of capital on vehicles
- Road tax, breakdown and maintenance fees will have to be covered
- Selling a vehicle can be a hassle
- Vehicle management is time-consuming
Is it cheaper for a business to buy or lease a new car?
In the majority of cases, it’s cheaper for a business to lease a car rather than buy one. Buying a vehicle requires paying out a huge amount upfront rather than leasing which has a low upfront fee and relatively low monthly cost.
Road tax (always included), breakdown, maintenance and insurance can also be included for more cost-effective business motoring.
Other business motoring options
Not sure whether buying or leasing is right for your business? You could take out a salary sacrifice lease.
The salary sacrifice scheme lets employees take out a business lease through their company in exchange for giving up a small portion of their salary, usually working out as a cheaper option for both the employer and employees.
Which business shouldn’t lease a vehicle?
Business leasing will likely be best for most businesses but if you fall into the below category, it may not be suitable for your business:
- If you’ll likely average more than 60,000 miles a year
- If you need to modify your vehicle
- If owning a vehicle is important to you
- If you want a vehicle for five years or more