The current habit of purchasing company cars outright for vehicle pool and individual use is denying the small and medium enterprise sector some £2.4 billion in potential investment fundsThe small and medium enterprise sector still sees outright purchase as its preferred route for car acquisitions. This is according to recent figures released by the British Vehicle Rental and Leasing Association (BVRLA). Its study shows that some 1.4 million vehicles currently on the roads were bought outright, costing the SME sector around £2.4 billion.
The benefits of the most popular acquisition method - contract hire - among larger and often more sophisticated companies are, according to the BVRLA, almost identical for the smaller business. These are generally seen as the removal of risk in areas such as residual value, maintenance and interest rates; known budget expenditure for up to three and four years in advance on a vehicle fleet – with all the business planning benefits that can offer; and the release of those funds to boost investment in building the company and its resources. There is a tax advantage too in terms of Corporation Tax for the contract hire company will be able to take full advantage of the writing down allowances and pass these on in its rates, a benefit not necessarily enjoyed by all SMEs who may not have the full tax shelter required.
For the accountant and business owner in the SME sector there is further appeal in the fact that contract hire is viewed by the authorities as an operating lease, meaning that it currently benefits from being counted as an off-balance sheet item under the present accounting standards.
John Lewis, director general of the BVRLA, said: “The reluctance among small and medium business organisations to adopt modern acquisition methods for company vehicles is potentially a serious matter. The sums of money involved are staggeringly high, and I wonder just how many bosses in these organisations, or their advisers, genuinely understand the alternatives and how much the release of funds into their core business activities might boost them. Add to that the lost potential benefits of greater safety and better budgeting in their car operations, and this looks increasingly like a factor that is seriously holding back the sector’s growth potential.”
Choosing a contract hire company
Useful tips and advice on how to find the best supplier for you.
1. Do some solid research on contract hire companies via their websites before you compile a shortlist
2. When you do call or email them check out how quickly they respond and whether they know their stuff about tax/environment etc
3. Make sure you end up getting the right finance product for you. A good supplier will recommend different funding options across the fleet to ensure you and your drivers opt for the most effective vehicles for tax and usage purposes
4. Don’t always go for the cheapest monthly quotes as they might end up costing you more in the long run. Check the small print and make sure you compare apples with apples on price and service before making your decision
5. If you need a van always make sure that your supplier has a strong track record in this area, otherwise you may just get what they want you to have rather than what you really need
Carbon emissions and Benefit in Kind Tax
1. Choose a supplier that knows the latest legislation and can transmit that into your fleet and how it best benefits your drivers is vital
2. Check if your supplier has got any ‘green’ credentials, for instance ISO14001, which means a company runs its business around some very stringent environmental standards
3. Check that your supplier knows about green issues and ways of reducing your vehicle emissions across the fleet. Also ask whether they can supply specialist LPG or hybrid cars as part of their standard service. This will be a good test of their environmental credibility
4. Many fleets run a few vans in addition to their company cars, but not all contract hire companies are experienced in this very specialist area - if you have to wait two weeks for a quote on a specialist van, it’s likely that your supplier is not experienced enough in this area.
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