Business vehicles: benefits and costs

If you were looking for information relating to company car tax or driver management issues please see our related article Company cars: implications for your staff and your business

You may need vehicles to actually operate your business or, if you’ve got employees, you may be considering providing business vehicles which are available for private use as an employee benefit. Whatever the reason you’re purchasing and running business vehicles, make sure you understand what’s involved and what your obligations are.

Buying a business vehicle

If you have the funds available, or you are able and willing to take out a loan to finance the purchase, buying your own car(s) outright is one option to consider.

Advantages of buying your own business vehicles

you legally own the vehicle
you may deduct bank interest and capital allowances from taxable profits

Disadvantages of buying your own busines vehicles

you are responsible for maintenance
when you decide to sell the vehicle, its value may be less than you expected

Buying a vehicle via Hire Purchase

You usually pay an initial deposit (using business funds or a loan) and then pay for the vehicle via monthly payments over a set period of time. At the end of the period you pay the final option to purchase fee and the vehicle is yours.

Advantages of buying a vehicle via Hire Purchase

you do not bear residual value risk, although you may include an option to take ownership at the end of the lease period for an amount that is fixed at the start of the agreement
you may deduct bank interest and capital allowances from taxable profits

Disadvantages of buying a vehicle via Hire Purchase

you do not legally own the vehicle until you take ownership at the end of the hire purchase period
for cars, the VAT paid is generally not recoverable from HM Revenue & Customs

Leasing a business vehicle

Leasing a vehicle is like renting it over a period for set rental payments. At the end of the period you can either return the vehicle to the owner or opt to pay an option to purchase fee and the vehicle is then yours.

Advantages of leasing a business vehicle

you do not bear residual value risk, although you may include an option to take ownership at the end of the lease period for an amount that is fixed at the start of the agreement
you may deduct rental payments from taxable profits
maintenance and road tax charges are often included in the monthly fee

Disadvantages of leasing a business vehicle

you do not legally own the car
you cannot deduct capital allowances from taxable profits
there will usually be annual mileage limits and you will incur hefty penalties if you exceed them

Insurance for your business car or van

When looking at insurance cover for your vehicles don’t always go for the cheapest – look for well-known companies that provide good support in the event of a claim and have experience in providing insurance advice for business vehicles. Remember, if your business relies on its vehicles you could be severely impacted if anything happens to put them out of action.

Third party insurance is the minimum insurance cover you can get and is mandatory. It covers the drivers' liability for injury to others, including passengers, and for damage to other people's property resulting from use of a vehicle on a road or other public place.

Fire and theft cover is often added to third party cover and will give you added protection against theft or damage from fire.

Comprehensive insurance covers damage to your vehicle as well
Also consider damage and theft insurance for any goods being transported

Get a business van insurance quote from MORETH>N BUSINESS

Get a quote for business car insurance

Other operational overheads to consider

routine servicing of vehicles and MOT certificates if required
repairs for scratches, wear and tear or accidental damage – maintain a good business image by having your vehicles in good repair, especially if they have your company name or logo on them
fuel (It’s worth considering alternative fuel systems for your cars as these could make a significant difference to the running cost of your cars).
cleaning
parking costs
congestion and toll charges
garaging or parking for vehicles stored at business premises
additional security features - eg immobilisers - which may reduce your insurance premiums