Purchase or Lease a Company Car – Car Leasing

Do I Purchase or Lease a Company Car?

There are two common ways to obtain company cars, purchasing outright or leasing.

(i) Purchase

The key advantage of purchasing is that after payment, the vehicles are yours. This means you can sell them after a set period of time, or in exceptional circumstances (e.g. A key employee leaves); and regain a proportion of the costs. Some businesses give their employees the opportunity to buy their company car for a reduced cost after a set period of time.

However, purchasing the cars outright means that you have to pay the full cost of the car (Either in one lump sum or over/after a set period of months). This can make a huge dent in cash-flow, particularly if your business requires more than one or two vehicles.

Purchasing outright also means that you need to pay for full insurance and maintenance of the vehicles, either through servicing and repair charges, or by paying for maintenance cover from the manufacturer or third-party.

(ii) Hiring and Lease: Leasing a Company Car

A company car can be hired or leased for a set number of years, depending on the leasing company. There are two main advantages of hiring and leasing; Payments will have a smaller impact on cash-flow than when purchasing outright; and vehicle maintenance can be covered either as part of the price, or as an optional extra. Insurance is not normally included as part of a leasing deal, but is usually offered as an optional extra. If taken, this is generally cheaper than purchasing separate insurance cover.

An advantage of hiring a car is that the employee pays less (or no) tax on the car (benefit in kind tax), and you may also save on other tax costs if the car is at least partially used for business purposes.

The main disadvantage of hiring and leasing is that you never actually own the car, even after several years of payment. This does mean however, that it is easier to trade up to newer models at the end of a contract, which will help keep your cars reliable as well helping improve the company image.