Since buying a vehicle is one of the biggest purchases you can make, it’s wise to take a look at all your options. Both leasing and buying have advantages and disadvantages.
Why buy a vehicle?
- Buying a vehicle tends to bring a bit more freedom as it’s your own property. You’ll be free of strict lease contract limits and you can do what you like aesthetically, so if you fancy scrawling your business name and number on the side, go ahead – nobody can stop you!
- You can claim the cost of buying a vehicle as expenses against your income tax bill, but how you do so depends on how you pay tax. If you use traditional accounting you can claim the vehicle as a capital allowance.
- For the most part, this is the same if you use cash basis accounting unless you’re using simplified expenses.
- And there’s also always the option to sell your vehicle on should you need a cash injection.
Why lease a vehicle?
- Leasing doesn’t require a big chunk of cash – either from yourself or a loan – as the cost is spread out over the fixed term of a contract. You’ll just need to put up a deposit, which usually isn’t too big.
- Maintenance costs tend to be covered by the leasing company so you won’t have that worry either, and should you grow attached to the vehicle there might be an option to buy it. You’ll just need to commit to a ‘lease purchase’ style agreement.
- Just like buying a vehicle, you can claim the cost of vehicle rental as an expense when it comes to filing your tax return.
Whats best for your business?
By buying you’ll be left solely responsible for:
- The vehicle’s upkeep – including breakdowns, repairs and general wear and tear
- The legal logistics – your road tax and insurance responsibilities
The costs of breakdowns and repairs can be large, but if you’re a little more established and can cope with these payments then buying could make more sense. Leasing certainly isn’t perfect for all, as you might face things like:
- Mileage restrictions and hefty penalties should they be exceeded
- Long-term contracts that may not fit your changing circumstances
- An overall payment that ultimately outweighs the cost of buying outright
So, buying tends to bring a bit more freedom whilst leasing, a little more security. Neither option is necessarily better than the other – what fits best will depend on your business. Take a long look at your balance sheet, weigh up the pros and cons, and pick your option carefully.