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Should You Buy or Lease a Van? Which is Right For Your Business?


Last updated: 02 January 2024

Choosing between buying or leasing a van for your business is a decision that requires careful consideration. The right option will mostly depend on your type of business and the short term and long term costs to your business. So what is the best option for your professional needs? What are the pros and cons of buying or leasing a van?

Whether you are looking to expand your fleet, or thinking about taking your business out onto the road, this article will cover the following:

What is the difference between vehicle purchasing and vehicle leasing?

When you purchase a van, you become the owner of the vehicle, giving you complete control over how long you keep it, and whether you would like to make any alterations to it. For example, if you worked as a handyman, you could build a workbench into your van for more efficiency.

When you lease a van, you are essentially renting the vehicle from a vendor. You do not own it, but you are able to use it for the duration of the lease. It will also have a mileage allowance which can usually be decided by you, but the further you want to travel, the higher the monthly costs.

Factors to consider

When deciding whether to lease or buy a van for your business, it is advisable to carefully consider the various factors that match both your financial situation and specific needs.

Ask yourself:

  • Will you get enough value out of the vehicle?
  • What is your budget?
  • How often will you use the van for future business needs?
  • Will you be driving it through any Low Emission Zones? (such as, ULEZ?)
  • Is the vehicle for both business and personal use?

Once you can answer these questions and understand what usage your business will get from a van, then it is time to work out your affordability.

Work out your baseline costs

Knowing your baseline costs will allow you to budget constructively, ensuring that your business can afford the vehicle without the risk of over-stretching your cash flow. The decision you make must be cost-effective in the long run, so it is wise to be prepared for the baseline costs to run and maintain your vehicle.

The baseline costs that you will need to look after the van include:

  • Insurance
  • Breakdown cover
  • Fuel costs or electric charging point considerations
  • Service charges
  • MOT tests
  • Maintenance
  • Road tax
  • VAT Relief

It is worth nothing that when leasing a vehicle, the agreement will include the requirements you need within the price. This will often include the insurance policy, breakdown cover, maintenance costs, vehicle service, MOT and road tax.

Baseline costs of leasing a van

The costs of leasing a vehicle are dependent on a variety of aspects, and it is different for each leasing provider on what is covered in the lease.

As each leasing agreement is specific to the individual, a general cost breakdown would be organised by:

  • Initial payment: the cost you would be paying for the van
  • Length of contract: whether you need it for the short term, such as 12 months, or even longer.
  • Annual mileage allowance: you will be contracted to stay within the mileage limit agreed, in order for the company to gauge your usage of the van.
  • Road tax: depending on your vendor, sometimes this price is included in the initial payment of the lease agreement.

It should be noted that exceeding your lease contract mileage will often incur a fee per mile. When you start a lease for a van, an accurate estimate of your mileage will ensure you are not charged potentially thousands of pounds at the end of your contract.

Baseline costs of purchasing a van

If you purchase a van, any costs associated with it are your responsibility. When vans are used for business purposes, they can require more maintenance due to the mileage they cover and the use they get.

Typical costs of purchasing a van can involve:

  • Initial purchase: the lump sum you have agreed to pay for the vehicle.
  • Depreciation: if you purchase your brand new van from the vendor’s forecourt, it instantly loses value. Therefore, you may not be making a cost-effective decision for your business.
  • Second-hand vehicle repairs: buying a second-hand van may be a better option depending on how much you would like to spend; however, a poor purchase could result in multiple repairs and replacement costs.
  • Insurance: it is a legal requirement to insure your vehicle. Insurance provides financial protection if you have an accident, which can cover injuries to other drivers and passengers. Breakdown cover
  • Breakdown cover: although this is not a legal requirement, it is still very important for you to have. Not having breakdown cover for your vehicle puts you at risk of losing business as you are not able to carry out your usual duties.

Advantages of purchasing a business van

There are significant financial benefits to buying vehicles outright, so long as it would not disrupt your business’ cash flow.

Financial Freedom

Once you have made the transaction, the vehicle is yours, and you do not need to worry about monthly payments affecting your business. Depending on what you would like to do with your company, you can customise your van to suit your needs. For example, if you owned a children’s entertainment company and you travelled from party to party, you could have your van tailor-made to be wrapped with an assortment of colours to attract your customers on the road. Once you have utilised your vehicle, you are then able to sell or trade it without having to worry about contractual obligations.

Tax Savings

Depending on whether you're a sole trader or a limited company, you may find you're able to benefit from a range of tax savings when you purchase a vehicle for your business. For example, the cost of purchasing the vehicle reduces your taxable profits for the year, which in-turn, reduces your corporation tax liabilities. Similarly, if you are a VAT registered company then you will be able to reclaim the VAT.

Business Freedom

Similar to above, once you own the van you can do what you want with it. Your business is not limited by the scope of a contract. Mileage is not a concern and you can use the vehicle for personal use beyond the scope of your business. If you wish to start another business you have the flexibility to use your vehicle, whereas a lease may be constrained by the contract with the leasing company.

For more information on the benefits, or if you feel that purchasing a vehicle out-right would be the right choice for your company, check out our guide on how to buy a van through your business.

Disadvantages of purchasing a business van

There are some drawbacks to purchasing vehicles for your business.

Overall costs

The initial cost of purchasing a van is a significant expense for a business. Then, the ongoing costs for insurance, tax and maintenance need to be accounted for. In the event of an accident, your business could be in jeopardy if employees are unable to get to a job.

Growing a fleet

Related to costs, if you require a handful of fleet vehicles, this could put your business’ finances under strain. The average cost for a commercial Ford Transit can range between £23,000-£26,000. If you needed multiple vehicles to improve your business, this could significantly put your working capital at risk. If you still want to purchase outright, second-hand vans may be more appropriate. For example, the price of a second-hand Ford Transit can start from approximately £11,500.

Luckily, there are options available to help your business if you do decide that purchasing a commercial vehicle is the right thing for you. Business van finance is available from Union Business Finance to support businesses that need to expand their fleet of vehicles quickly. Finance can spread the costs of buying vehicles over years, allowing your business to grow and thrive.

Advantages of leasing a business van

Choosing to lease a business van may be the more affordable option for your company if you do not require it over a lengthy period of time.

The benefits of leasing a van include:

Lower monthly payments

When you lease a van, you are able to pay back the price of the lease over time at a lower monthly cost. This is particularly accessible for businesses with limited upfront capital.

Flexibility

Lease agreements allow you to upgrade to the newest fleet of vehicles with modern technology.

Tax relief

Depending on the agreement, your payments may be tax-deductible as a business expense.

Reduced depreciation risk

As you do not own the vehicle, you are not affected by the depreciation of value once the vehicle is used.

Disadvantages of leasing a business van

On the other hand, it is essential to understand the potential downsides of leasing fleet vehicles, which can be:

Lack of ownership

You may be able to drive the vehicle and use it on a regular basis, but you would not be able to build any equity in the asset.

Potential fines for repair

If you do not care for the van, you may be charged a fine for extra damage and repair costs.

Mileage limitations

If you had a high-profile client who lived outside your usual business radius, you may risk compromising your mileage agreement, potentially resulting in more costs at the end of the lease term.

Can you use a commercial vehicle for personal use?

As a business owner, you may find that it is more convenient for you to use your commercial vehicle for personal use, as well as business. In this case, the amount of tax that you will pay would depend on whether you are self-employed, or if you have established your business as a limited company. It is also essential that you consider the effect it will have on your insurance.

If you are self-employed, using your vehicle is considered a “benefit-in-kind” (BIK). A BIK is a tax for employees who receive benefits in addition to their salary. If your vehicle is for private use, you will need to pay a BIK, or company vehicle tax.

If you are a limited company, private use of your commercial vehicle is taxed at a specific rate. You can check this using Gov. uk, which will estimate the amount of tax you will pay.

That being said, you may not be able to use a leased commercial vehicle for personal use. It will depend on the agreement with the leasing company at the start of the lease. If you want to change the usage from business to personal, call the leasing company and discuss your options.

Chat with us about our range of business van finance solutions

At Union Business Finance, we are committed to providing quality finance solutions in order to expand your business.

We pride ourselves in:

  • Same day finance
  • Competitive low interest rates
  • £0 deposit required

To discuss which financing option is best for your company’s vehicles, explore our business van finance solutions today.

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Disclaimer

Aintu Ltd T/A Union Business Finance is an independent Asset finance broker not a lender, as such we can introduce you to a wide range of finance providers depending on your requirements and circumstances. We are not independent financial advisors and so are unable to provide you with independent financial advice. Aintu Ltd T/A Union Business Finance will receive payment(s) or other benefit from the finance provider if you decide to enter into an agreement with them. Aintu Ltd T/A Union Business Finance is an appointed representative of AFS Compliance Ltd which is authorised and regulated by the Financial Conduct Authority under number 625035. Aintu Ltd T/A Union Business Finance aims to provide our customers with the highest standards of service. If our service fails to meet your requirements and you would like to report a complaint; please click on the link below;

https://www.afsuk.com/asset-finance-solutions/contact/complaints-procedure/

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