Not sure whether to buy or lease? Let us help you decide
A van is an important investment, so here we look at which option might best suit you.
Searching for a van can feel like a mission. With so many sellers fighting for attention, it can be tricky to cut through the upsell, with all the offers and payment plans proving a lot to get to grips with. Broadly speaking you’ve got two options: buying or leasing. So how do they differ, and which will best fit your business?
Consider the cost
It may sound obvious but to buy a van outright, you will need a large lump sum of savings, especially if you are looking at new vans. If you have a large amount of money and can afford the brand new van you want, then it’s a great option if you’re happy to then keep that van for many years and don’t mind about the depreciation of value as soon as you drive it out of the dealer. You should especially consider depreciation if you're funding your van through the bank loan, as you're borrowing money to purchase an asset which could drop in value by 50-60% within three years. Even if you’re looking for a used van for a smaller amount of money upfront, this also comes with risks such as mechanical issues, and therefore ongoing maintenance costs.
Leasing doesn’t require a big chunk of cash as the cost is spread out over the fixed term of a contract. You’ll just need to put up an initial rental (from 3 to 12 rentals depending on what you agree). The monthly rental is normally lower than taking out a bank loan and you don’t have to worry about the van depreciating in value. You drive a brand new vehicle with a manufacturer's warranty. This surely sounds good but there could be some other costs associated with leasing that are not included in your monthly rental. You will be charged for the damages to the van (outside normal wear and tear) and for excessing the contracted mileage.
Buying is a better option if you want to take advantage of full ownership. Owning a van tends to bring a bit more freedom as it's your own property and you may do whatever you wish with it. There are no restrictions on the mileage and no charges for the damages. You can also choose to sell your van at any time should you need a cash injection.
Leasing is different from buying, as you won’t technically own the van. You’ll just be renting its services - typically for a monthly fee. A middle option is the Business Contract Purchase (BCP) where you have the option to buy the vehicle through a balloon payment or to hand it back or upgrade. Hire Purchase/Lease Purchase is another middle option of financing a van in order to own it.
There are various advantages whether you buy a van or lease it, but which makes more sense for your business is entirely down to personal preference.
When you buy a van, you can claim the cost of it against your income tax bill, but how you go about this will depend on how you pay tax. For those using traditional accounting, you can claim your van as a capital allowance. For those using cash basis accounting, this is almost the same unless you’re using simplified expenses.
By contrast, if you lease a van, you can claim up to 100% VAT back on the monthly payments if your business is VAT-registered – provided your van is only used for business use. As with buying a van, you can also claim the cost of the van rental as an expense when filling out your tax return. These rental payments can be classed as a tax-deductible expense.
Tax Benefits and Implications of Business Car and Van Leasing
The choice between leasing and buying a van will depend as much upon your financial situation as it will the length of time that you want to use the van, plus the level of involvement you'd like to have in looking after it.
A lease is typically preferable for medium to long-term usage. If you intend to keep a van for a very long time, buying is nearly always the best value for money – especially if you can get a good deal.