Choosing a company vehicle

Choosing the right vehicle(s) and the right finance options for your business is an important decision: get it wrong and it is potentially costly. Get it right and you can save a lot of money, time and hassle – so give it careful consideration. 

A Grey fleet

This is the term used when you use your own or colleagues’ or employee vehicles for business purposes. This can work well in the early days, as it is low cost, 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.

What are the alternatives?

Your business can purchase a vehicle outright or through a conventional finance deal. In recent years, a personal contract purchase (PCP) has become a popular option. In effect, this is a long-term rental agreement, which can also include maintenance services and other extras. Crucially, at the end of the contract, you also have the option to buy the vehicle outright 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. 

Contract hire

Here the business pays a fixed monthly sum to lease a vehicle over a fixed period. A single monthly fee can still 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, so this is an attractive option to manage cash flow.  

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 and the government has now stated that it will ban the sale of new petrol or diesel vehicles after 2030, which will begin to impact vehicle depreciation rates. Glasgow and Edinburgh 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.

This all means it is worth considering hybrid, electric or other alternative fuel vehicles for any upcoming purchases.