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Does it make financial sense to buy a vehicle through your business?
If you own a business, a lesser known fact is that buying or leasing your car through your company can work out cheaper than if you were to buy it through a personal finance plan.
There are a number of reasons for this, one of the biggest being the way a lender sees differences between private and business purchases. Say you see these great deals on new Transit vans. You can’t quite afford to buy a van outright, but you could really do with updating your current workhorse.
So, you investigate the Personal Contract Plan (PCP) route. And it turns out that, were you to buy a van costing roughly £30,000 via a PCP spread over four years, you’d pay something like £3,000 to £4,000 more than if you were to buy or lease it through your business.
According to Telegraph.co.uk, the reason for the difference comes down to the way a lender views the van. As a business purchase, it is judged to have less residual value than it would it were purchased privately.
As Malcolm Banfield, sales director for RCI, the company that provides finance plans for the likes of Renault, Nissan and Dacia, explains on the website: “If for a retail PCP that amount is £5,000, on a business lease it will be £4,500. This ensures the private customer has some equity in the car that they can use to, for example, start a PCP on another car. But it means slightly increased repayments.”
Not, then, because business drivers are perceived as more responsible and reliable than private purchasers. In fact, car companies who lend to business customers would actually be likely to get less back in the case of non-payment, since there would probably be a lengthy queue of other creditors with more of a stake ahead.
As accountancy website Brookson.co.uk highlights, you can claim interest on repayments as allowable company expenses. However, that only holds true if a loan is taken out to buy the car or if a Hire Purchase plan has been entered into. For a more detailed run-down, do visit the site.
As for the man who provides such plans to the motor industry, what would he do in a similar situation? He told Telegraph.co.uk that: “If I was VAT registered, I would go for a business lease, funding the car through contract hire. That would keep the car off my balance sheet, I could deduct the rental cost from my profit, reclaim VAT and I could take out a maintenance plan, too. Everything is sorted out with nothing to worry about apart from a simple monthly payment.”
Of course, there are many variables when it comes to the world of business purchases, and any deal would very much depend on your credit rating, annual mileage, deposit size, tax plans and the type of car itself. In answer to the question posed in the title of this piece, then, yes, it could indeed make financial sense, provided it suits the circumstances of your business.