Funding a Company Car Fleet
For organisations of any size, a company car fleet can be a cost effective and highly useful addition to a portfolio of assets. A company that requires its staff to travel considerable distances during the course of their employment, for example an organisation that employs travelling salespeople, would generally be expected to provide a car or suitably reimburse the relevant employees for the use of their own vehicle.While there is no legal obligation to do so, the provision of a company car fleet in these circumstances is almost a given. Similarly, many companies choose to operate a company car fleet as an employee benefit, and while the redrawing of the tax schedule has made this practice less widespread, it is still a popular offering amongst employees. However, running a company car fleet can present a drain on finance. As such, it is important that your organisation investigates all potential options for funding your fleet.
There are five main types of company car fleet funding available. Each of these has a number of advantages and disadvantages, depending on the nature and needs of your organisation. In the first instance, a company may choose to buy a car or fleet of cars outright.The benefits here are that the car is the property of the company from the outset, and that they then have complete control over its use. However, the company then takes on complete responsibility for the service and maintenance of the car, presenting a regular draw on finances. There are also tax implications for this type of funding: tax deductible capital allowances are permissible only up to a total of 25% of the value of the vehicle, or £3,000, depending on which is higher.
Hire or Lease Purchase
Another potential choice is hire or lease purchase. Under these arrangements the car remains the property of the leasing company until final payment has been made by the customer (that is, the employer). Again, the company takes on responsibility for maintenance and service, but this option can ease cashflow and finance concerns as a payment of around 15% will be needed up front, rather than the full 100% required for outright purchase. Furthermore, finance payments can be offset against tax.
Another option is finance lease. This is similar to hire purchase, with a 15% payment being required at the outset. However, all monthly rental payments are tax deductible, up to a total purchase price of £12,000 per vehicle. After this point a sliding scale system is operated. However, half of the VAT on rental payments, and all of the VAT on maintenance, can be reclaimed; this tax deductible element does not apply to hire purchase or outright purchase.
Contract hire is also becoming a popular funding choice. Under these arrangements, the funding company retains ownership of the vehicle for the lifetime of the hire, but they are likely to also take responsibility for maintenance and servicing. Only 6-7% of the purchase price is required up front, and the tax treatment is the same as for finance leasing.
Finally, some companies choose a contract purchase arrangement. The funding company retains ownership of the car until final payment has been made; if a lump sum payment is made by the employer at the end of the contract, ownership of the car will pass to them. Aside from this, the tax implications are the same as for contract hire, although it is not possible to reclaim VAT on regular contract payments.
As can be seen, the way in which you choose to fund your company car fleet will depend on the circumstances of your business. Cashflow will be a significant consideration, but you should also look at the potential depreciation of the vehicle; if you choose to purchase outright, or purchase at the end of a contract, you will be left with an asset that is worth less than it was at the outset.