Vehicle lease contracts are becoming increasingly popular with everyday buyers, and while it was common for many businesses to lease vehicles before, there is a clear trend towards even more businesses choosing this option. There are many factors stimulating this growth, including tax incentives and the growing influence of start-ups on the market. Let’s take a look at some of the numbers behind this trend and reasons why car leases seem so attractive to new businesses.
The Numbers
For the first half of 2019 BVRLA leasing broker statistics show a growth of 12% compared to the first half of 2018. The growth is almost entirely due to growth in personal contract hire (PCH) for cars (+23%) and business contract hire (BCH) for vans +(16%).
The total number of contracts at the end of June 2019 was 338,111, a net increase of 35,699 in the same period last year. The volume of new contracts in the year July 2018 to June 2019 was 115,941, up from 108,218 achieved during 2018 calendar year.
For cars, personal contract hire (PCH) continues to dominate, representing 60% of all car leasing contracts on fleet, whilst business contract hire (BCH) was down from 40% to 36% of cars on fleet.
The number of new van contracts made in the year between July 2018 and June 2019 was 29,269. This is 1500 greater than the total number of new contracts made during the 2018 calendar year.
Other highlights include:
Cars
- 57% of the BVRLA broker vehicles on contract and 65% of new contracts are PCH. PCH grew by 23% year on year.
- 38% of the BVRLA broker vehicles on contract are business contract hire, and 33% new contracts are business contract hire. BCH grew by 1% year on year.
Vans
- 64% of the BVRLA broker vehicles on contract and 71% of new contracts are BCH. BCH grew by 16% year on year.
- 29% of the BVRLA broker vehicles on contract are finance leases. Finance leases grew by 1% year on year.
The Factors Behind This Trend
Leasing vehicles is always a great option for businesses who are trying to balance their books and forecast expenses. Leasing is also seen as a great option for startup owners as well. As many of these budding businesses are cash poor, leasing allows them to limit monthly expenses and put that money to better use. Then there’s the benefit of having a new or almost new vehicle that will remain under warranty during the duration of the lease for a fraction of the cost.
The Tax Benefits
Another thing that pushes many businesses to lease instead of buying are the tax benefits.
It’s good for company accounts
On a Business Contract Hire, the vehicle or the fleet of vehicles are not shown as a liability or an asset on the company balance sheet. Instead, the vehicles are “off balance sheet”. This is a huge advantage for businesses as it means you can apply for more credit lines.
You can offset the rental
If you are a limited company, then you can offset the monthly rental against your end of your corporation tax. If you are a sole trader or a partnership, then you can offset the rental against the yearly taxation.
Reclaim VAT
Leasing a car for business means you can reclaim a generous 50% of the VAT paid. When the vehicle is used exclusively for business, for example a van, taxi cab, driving school car or self-drive hire vehicle, you can reclaim 100% of the VAT.
You can claim back on excess mileage and maintenance agreements
The excess mileage charge is considered a service charge. This means that you can offset 100% of this charge against corporation tax. You can also claim 100% of the VAT back on your VAT return.
Read more about Tax Benefits & Implications of Business Leasing
A Few Cautionary Words for Business Owners
While leasing a vehicle can be a great way to free up some cash that can be reinvested, it’s also important that business owners choose the right terms and contract types (find out more about different types of contracts)
Conclusion
Leasing is definitely growing in popularity among financially conscious businesses and customers alike. This in return could have tangible repercussions on new vehicle sales, and the motor industry as a whole.