Company Vehicles - choose wisely

Choosing the right vehicle(s) and the right finance options for your business is an important decision and a costly one if got wrong.

But whatever the nature of your business and your vehicle requirements, it is important to give this question a good deal of thought because the right solution can save a lot of money, time and hassle. 

Using your own or colleagues’ or employee vehicles for business purposes – a so-called ‘grey fleet’ – can work well, but grey-fleet vehicles tend to be older, less reliable and more polluting than newer vehicles, according to research from the British Vehicle Leasing and Rental Association. But if you are going to acquire other vehicles for business use, how do you go about choosing between the different ways to do so?

Paying for it

Aside from purchasing vehicles outright or through a conventional finance deal, an option that has become most popular in recent years is a personal contract purchase (PCP) – in effect, a long-term rental agreement, which may include maintenance services and other extras, but in which you also have the option of buying the vehicle at the end of the contract via a final ‘balloon’ or ‘guaranteed final value’ payment.

The vehicle appears on your balance sheet as a depreciating asset, allowing you to claim capital allowances of 25 per cent per year, and VAT is deductible on rental agreements if the vehicle is used for business purposes only. 

Another option is a contract hire agreement, in which the business pays a fixed monthly sum to lease a vehicle over a fixed period. A single monthly fee can include some or all of maintenance, emergency breakdown cover, road tax and insurance. VAT-registered businesses can claim 100 per cent of VAT paid on maintenance costs and leasing fees for commercial vehicles, plus 50 per cent of VAT on fees and finance of vehicles for private use.  

Petrol, Diesel or Alternatives

Budget constraints will inevitably be a primary consideration when selecting a vehicle, but beyond this, the most important question is how the vehicle or vehicles will be used. Are they being used in cities, on short, sharp runs? If so, petrol vehicles are more efficient than diesel, or a hybrid vehicle might be the right choice. If you are going to be driving long distances on motorways you’re still better off using clean diesel.” 

Lower-emission, alternative-fuel vehicles are becoming a more attractive option for businesses in some locations, as central and local government actions begin to increase the costs of driving older, more polluting vehicles. Glasgow and Edinburgh, for example, are poised to introduce City Centre Clean Air zones which would see drivers fined more than £20 a day for using a high polluting vehicle in the designated zones. Aberdeen and Dundee are also making plans.

In July the Government announced long-term plans to ban new petrol and diesel cars from 2040, with Scotland planning to phase these out by 2032; several major car manufacturers have announced plans to scale back and in some cases end production of petrol or diesel vehicles. 

While this doesn’t yet mean you have to consider using hybrid, electric or other alternative fuel vehicles immediately, the chances are that sooner or later you will.