One of the most common questions we get asked by our clients is “what is the best way to own a car – lease or buy?”
Unfortunately, there is no straightforward answer and ultimately, it depends on a number of factors concerning you and your business. So, whenever this query arises, we put the kettle on, roll up our sleeves and break out the spreadsheet to delve into the complex calculations required to find out what is the best option for you.
The issues to consider when deciding whether leasing or purchasing would be most beneficial for you, are many and varied and include:
Tax
If you buy the car, you will get tax relief based on the purchase price. The amount of relief you get will depend on the car, its cost and engine size (or lack of in the case of electric).
If you lease the car, you will get tax relief based on the cost of the lease payments.
Finally, your level of profit will determine how much tax relief you get, if any.
VAT
Lease payments are subject to VAT and you can normally claim back 50% of the VAT on these.
You can’t claim any VAT on cars you purchase.
Depreciation
Most cars will be worth less the moment you leave the dealers forecourt, and this deprecation is a factor we have to consider when determining if its best to lease or purchase. So, the length of the agreement and the future resale value is taken into account.
The future resale value won’t be an issue if you lease the vehicle.
Actual Repayments
The amount you will actually pay on the lease vs the purchase is also a big determiner of which option is best to you.
Your Cash Position
The business’s cash position is also something to consider. For example, if cash is tight then leasing may be the better option, since leasing will incur a lower up-front cost to the business.
Benefit in Kind
If you buy or lease a car through a limited company, you will incur a P11D Benefit calculated on the list price of the car multiplied by a % based on the co2 emissions. Either way, purchase or lease, this benefit is the same.
Then there are also non-financial factors to consider:
Restrictive Mileage
Leases come with milage restrictions and could end up costing you more if you use the car more than you anticipated.
Car Condition
When leasing a car, it has to be handed back in good condition and if you have children or pets, or like me you are an over enthusiastic diy-er, then this can be a challenge. You will pay for any damage when you hand the car back. The car companies are very good at charging you extra.
So, you should you lease or buy?
You can see the reason why our clients come to us to answer this question – and honestly, we love it – we get to use our knowledge and our spreadsheets to help clients make an important financial decision.
Either way, cars are expensive, but a recent calculation we completed for one client showed that a lease was £7K cheaper, so it’s definitely worth talking to us and considering the options before you proceed.
