If you’re starting a business that requires reliable transport, or your current work van is due for replacement, you might be considering what to do next. There are a couple of different ways you can acquire a new van. If you have the cash you could just buy one outright. If you don’t, then van contract hire may be your best option. Let’s take a look at van contract hire in detail so you can see if it’s right for you.
Contract hire is essentially a long term (12-60 months) lease on a commercial vehicle. Your business enters into a contract with the leasing company, and agrees to pay a fixed monthly fee in exchange for access to a van. At the conclusion of the contract the vehicle is returned to the company. If you are happy with the company’s service, you can begin a new lease with a new model.
There’s a lot of benefits to hiring a van instead of buying one. The fleet of vans on offer is likely to be modern and in very good condition. A modern van looks good, runs well and is likely to be fuel efficient, saving you even more over the long term. If your monthly fee includes all maintenance and registration costs, then you do not have to worry about tying up cash flow for these emergencies. Sometimes the maintenance package is available for a small additional fee on top of your rental, other times it is included. Either way, it’s much easier to factor in a fixed monthly payment for the van and fuel costs and leave the unpredictable costs to the leasing company.
Leasing provides flexibility. As they are typically only a 12-60 month commitment, you can choose to upgrade your van as the lease period expires. If you purchased a van outright and wanted to upgrade, you would be responsible for researching market value and finding a buyer before you could get your new van. Contract hire frees you from that obligation. Your old van is returned and you can drive away in a new one. This option also protects you from depreciation of your van’s value and the increasing costs of maintaining an older vehicle.
Van hire often has a low cost entry point compared to purchasing a van. To buy you’ll need to have the full value of the van in cash, or at least a sizeable deposit to secure a loan. The lease option gets you a new model van without putting pressure on the bottom line. The typical initial outlay is the equivalent to 3 months rental. You may also secure cheaper lease deals if you are interested in leasing more than one van at the same time.
Are there any tax benefits from leasing your van?
There are tax implications for your business when it comes to leasing a van. Generally speaking, your business may be able to claim 100% of the VAT back from the rentals, if the standard rate of VAT applies in your case. You may also find that the cost of the contract hire may be allowable against taxable profits. Finally, as the van is always owned by the leasing company, it does not appear on your company balance sheet, which can be a benefit for some people. Please check with your accountant for the most accurate information about your specific circumstances.
Leasing a van can also be a very quick way to access a vehicle. The approvals process can take as little as an hour, although most are typically decided within 24 hours. This is generally a much shorter time than what it takes to purchase a van outright.
There are some limitations of contract hiring a van for your business. These still pale in comparison to the costs and implications of owning your own vehicle but it’s important to have the full picture. Leasing a van can sometimes come with limits on mileage. This means you’ll need to consider how far you’ll be taking the van, and how often. The predicted mileage is usually negotiated at the beginning of the contract, and can sometimes be amended at fixed points during the lease period. Going over the agreed mileage limits will incur a charge per mile, calculated at the end of the rental. It is important to have an accurate idea of your mileage before signing the agreement.
As the van is leased you may not be able to alter the external appearance of the van, so having your logo applied may not be an option. Enquire if magnetic signage is allowed, as it looks very professional but is removable. Some companies do allow modifications for reasonable use to be made inside the van. In fact sometimes the customisations can be done by the leasing company, to be paid for by a small additional monthly fee.
You do not have the option to purchase the van from the contract hire company at the end of the lease period. This may be a drawback if you are particularly happy with the van or have customised it for your needs. Remember that a new van can also be tailored to your specifications.
Cancelling the lease early can incur penalties, as with any contract. Normal wear and tear is covered under the conditions of the contract, but any serious damage above and beyond that will need to be paid for, by you. It can be beneficial to take out insurance on the vehicle, as you are liable for the cost of repairs if the van is involved in an accident. If the accident is not your fault, often the leasing company will provide a courtesy vehicle until a new van can be arranged.
Van contract hire is a low cost way to access a modern van for your business. The reliable monthly costs relieve budgeting pressure and keep your cash flow moving. It’s can be an excellent way to grow your business.