To Buy or not to Buy

Thursday, January 25, 2024

When it comes to choosing a commercial van for your business, there are several options for you to consider. It can be confusing to know which is the most financially suitable and sensible option for your financial arrangements. We’re here to help you avoid any bumps in the road and make the best decision for your business… 

To buy or not to buy, that is the question… 

With commercial vehicle options available including Hire Purchase, Finance Lease and Contract Hire, making the right choice is crucial. But what do all these options mean?... 


Hire Purchase (HP) 


Hire Purchase, commonly referred to as HP, enables you to own the vehicle. Because you own the vehicle if you choose to sell it you will receive 100% of its equity at the time of resale, therefore any depreciation is at your own risk.  


When taking out an HP contract on a van you can benefit from low monthly payments, but you’d usually be expected to pay a larger deposit than the other 2 options below. The HP agreement would be set over a fixed term secured against the vehicle, but you would have the option to settle early if your finances allowed.  


You would be required to pay 100% of the VAT upfront and would not be able to spread the costs as with a Finance Lease or Contract Hire arrangement. From a tax perspective you can claim for a write down allowance and interest.  


Also, with the current super-deduction tax incentive, you could benefit from 100% relief on your outlay if purchased within 2 years of 1st April 2021, making this a much more desirable option in the current climate.  


Finance Lease 


A Finance Lease enables you to take advantage of the best of both worlds… You can enjoy low monthly fixed term payments but with the option to settle early. With a finance lease, once paid in full you will own the vehicle at the end of the agreement.  


100% of your rental costs are tax deductible and you’re able to spread the VAT costs, which makes this a preferable option for many business owners.  


Should you choose to sell the vehicle during the agreement you will receive 97.5% of any equity once all outstanding debt has been cleared.  


Contract Hire 

With this option, it’s important to understand that you will not own the vehicle at any stage. It is essentially a ‘hire’ agreement which therefore places any residual value risk with the funder and not with your business. At the end of your contract, the vehicle is simply handed back. It’s worth noting that you could incur excess milage or damage costs when the vehicle is returned, so ensure you fully understand your exposure from the outset and have budgeted accordingly.  

This long-term rental option does provide perks such as low monthly repayment costs, low initial costs, spreadable VAT and 100% tax deductible rental costs, making it appealing to many business owners.  


With all the options above you can take out a maintenance agreement that would enable you to budget for maintenance and repair costs without any hidden surprises.  

At Ellacott Morris, we're here to steer you in the right direction when it comes to all your financial decisions, so get in touch today enjoy some expert advice! 

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