A beginner’s guide to car leasing

family_carSupplying your workforce with a company car can be a costly business, but one way to reduce that expense is leasing. While buying a fleet of cars means tying your business to a contract or hire purchase arrangement, leasing offers more flexibility. Contract hire and finance leasing are among the options, with a different set of tax breaks to consider.

Typically a leasing policy could see a vehicle hired for the duration of the contract fall under your company’s ownership by the end of the lease period – usually three years or 60,000 miles. And although some packages come with strict terms that cover car maintenance, a maintenance contract can be added to the monthly cost of a car lease, to make caring for your car hassle-free, especially for high-mileage vehicles (check out What Car’s guide to maintenance packages here).

If you’re thinking of leasing company cars, here are the plans to consider. As The Daily Telegraph points out, you could make substantial savings.

Contract hire

Probably the most popular form of leasing company cars. A vehicle is leased with a mileage cap and for a fixed time frame, after which the car is returned. An up-front fee, usually of three months’ rental, is paid, followed by monthly payments for the duration of the lease period.

Pluses? The company sidesteps the risks of owning the vehicles, such as a lower than anticipated resale value, while maintenance costs are often taken care of. However, that could mean the company misses out if a car has a higher than predicted resale value, and that cheaper maintenance options are unavailable.

But the biggest draw is that the car is never owned. Therefore it can be claimed as a business expense in tax returns.

Finance lease

Rather like buying a car personally using a finance deal, this arrangement means you ‘buy’ the car for a set period by paying off a loan month by month. These monthly payments can be reduced should you opt to pay a larger chunk at the end of the lease period. At the end of the deal you have the option of paying a small fee to keep the vehicle on – although you still won’t technically own it.

A portion of the charges your company pays can be offset against tax.

Hire purchase

Just as if you were making a personal purchase, this is a straightforward plan that begins with a deposit and is completed by paying a certain amount each month until the car becomes your company’s property. Since the loan is secured using the vehicle, it stands to be repossessed should you fall behind on payments.

Any depreciation and the interest on the fees you pay can be claimed against tax.

Contract purchase

This is a lease combined with a service fee for maintenance, which the leasing company carries out. After a set number of the monthly payments, as well as one larger, final payment, the vehicle becomes the company’s property. It can then be sold back to the leasing company at an agreed price.



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