We have a number of guides designed to explore the different funding methods available for your company’s fleet, and this one will look in detail at leasing your fleet.
What is Fleet Leasing?
Fleet leasing is simply when you lease all or part of the vehicles that are in your business’ fleet.
These vehicles can be a company car offered to a particular driver and be theirs to drive for the duration of the contract, a pool vehicle that is used by various drivers throughout the lease as it’s needed or a work vehicle that remains on site.
Depending on the company’s needs you can lease cars, minibuses, vans and even modified vans like a fridge van or catering van.
How Does Fleet Leasing Work?
Leasing your fleet vehicles is a straightforward and simple process that can help rejuvenate your company vehicles, improve driver morale and reduce the time and costs spent looking after the fleet.
With leasing, you will select the vehicle model you would like, how many months you would like to have the vehicle for, the annual mileage allowance and then agree to the monthly rental payments and who will be responsible for the maintenance.
If you decide that leasing is the right option for your fleet, or even if you just want to discuss whether it’s the right choice, then please give us a call on 01722 322 888.
Benefits of Fleet Leasing
There are a number of benefits that leasing can bring to your fleet over other vehicle sources and we’ve rounded up the best ones below:
- It’s cost effective and cheaper than buying a new vehicle outright as you pay for the depreciation of the vehicle rather than the full value of it
- You can establish a fleet with minimal upfront costs and budget for the fixed monthly costs
- If you opt for a maintenance package scheduled servicing, maintenance and MOTs will be completed during the contract
- You will be able to add signage provided this is removed before the end of the contract to help increase brand visibility in the areas your drivers travel
- No concern about vehicle depreciation
- No worries about having to sell or dispose of the vehicle at the end of its life, or decide when the right time to do so is
- Businesses can claim back up to 100% of the vat on monthly costs depending on whether it is solely used for business travel or is also available for the driver’s personal journeys
Considerations for Fleet Leasing
There are a few things that you will need to consider when deciding whether leasing is the right choice for your business fleet.
You’ll want to consider the needs for each vehicle and whether these would be best met by a lease vehicle.
As part of this, you’ll want to think about the mileage the vehicle is expected to travel. Lease funders have a minimum and maximum annual mileage allowance and the monthly cost changes depending on the mileage allowance on the contract. Most funders will allow an amendment if you find after a year the vehicle is doing more / less than expected provided it fits within their limits.
Another factor you’ll want to bear in mind is that the vehicle will need to be returned at the end of its lease, and so if your work vehicles are heavily used and frequently transport goods that could increase the wear and tear to the vehicle above the accepted return condition.
Business leases can be of varying length from two to five years and so you’ll want to consider how long you want the agreement to last and how often you want to be updating and replacing your fleet.
You’ll want to consider this for each vehicle in terms of your monthly budget as well, and whether the vehicle and contract you are looking at will fit into this. Most businesses find it useful to set an amount for each vehicle and let their drivers know which models will fit into the budget for their car. If Wessex Fleet are helping you to source the new vehicles then we will be able to assist with this.
Why Should I Lease for My Fleet?
We've looked at the pros and cons above of leasing for your fleet vehicles and we know that for a lot of our clients leasing is the best funding option when they're expanding or updating their fleet.
Leasing is a great way to be able to provide your employees with brand-new company cars every few years, without the worry of a depreciating asset on the company books. It also takes care of some of the associated costs / admin of fleet ownership with the road tax covered as part of the agreement and optional maintenance package for the servicing, MOTs and other maintenance work.
Methods of Funding Fleet Leasing
There are two main ways in which you can lease a vehicle as a business: contract hire and finance leasing.
They are similar in a number of ways, for example both have a contracted lease period and regular monthly payments, but there are also several differences between the two. We’ve broken down the two below so that you can see both the similarities and the differences to help you decide which might be the better option for you.
Business contract hire agreements are designed specifically designed for companies to use and are essentially a long-term rental, where the business leases the vehicle for a set period of time and pay a fixed monthly cost for the duration of the agreement.
As you can see from the image above the cost of the lease is split between an initial rental payment and fixed monthly payments following this for the duration of the contract.
This amount will be the same in total but you can reduce the monthly rentals by paying a larger initial payment.
Contract hire leases offer you:
- Flexible contract lengths ranging from 24 to 60 months
- Low and fixed monthly costs
- A brand-new vehicle every few years
- No vehicle depreciation concerns
Though there are many benefits to business contract hire there are some factors you will need to bear in mind when deciding if it’s the right choice for your business.
There won’t be the option to purchase the vehicle at the end of the contract as there is with a contract purchase agreement.
You will need to stick to the contracted mileage allowance, unless you decide to make an amendment but this may affect the monthly payments, and you will also need to return the vehicle in line with the BVRLA’s fair wear and tear guidelines.
The second leasing option for businesses is a finance lease, this type of lease is only available for business customers.
This differs to a contract hire in that it gives you a number of options to choose from at the end of the agreement.
As you can see above there are three options available for you; returning the vehicle to the funder for them to be sold, selling the vehicle yourself to a third party on behalf of the funder, or entering into an agreed second lease paying a peppercorn rental.
With a finance lease a proportion of the vehicle, including interest and costs, is charged to you over an agreed upon fixed period of time through monthly payments. You can choose to pay the entire cost over equal payments over the contract period or to pay lower monthly payments and have a larger balloon payment at the end, which is based on the anticipated resale value.
With a finance lease the way in which the payments are calculated is also different to a contract hire agreement, as you are paying for the value of the vehicle over the duration of the contract. As you are leasing the vehicle it will remain the property of the lease funder but as you are paying for the vehicle’s value it will show on your balance sheet as an asset.
There are a number of benefits with a finance lease and these include:
- Flexible payments in terms of initial rental and balloon payment amounts that will reduce the monthly payments
- Businesses can claim back up to 100% of the VAT on a finance lease depending on whether the vehicle is used for personal use as well as business use
- Companies can claim back 100% of the VAT on any maintenance costs
- You choose the mileage of the contract
- There’s the option to extend the lease at the end of the contract so you can keep the vehicle for longer if needed
- As the vehicle shows on your balance sheet it will be a company asset
Other Funding Methods
Another method of funding you might want to look at is purchasing the vehicles outright.
There are benefits to owning the vehicle, including you can modify it in any way necessary for your business without worrying about handing it back to a lease funder, being able to travel in it at short notice, and it showing as an asset on your balance.
When you own the vehicle you will be responsible for any required maintenance work during its lifetime, and as the vehicle ages it will usually require more work.
Another factor you’ll want to consider is that when you want to upgrade the vehicle you will need to sell it and so you’ll want to consider the depreciation of the vehicle value over the time you have it.
If you want to spread the cost but still want to purchase the vehicle then you might choose to look at a contract purchase agreement instead.
This contract allows you to pay regular monthly payments towards the value of the vehicle and then a balloon payment at the end to own the vehicle. You can also choose to pay a larger initial payment in order to reduce the monthly payment amount.
These monthly payments are not subject to VAT and if you decide at the end of the contract period you do not want the vehicle you can hand it back to the lease company, but you will not receive any money back.
This option is only available to VAT registered businesses.
You might not need a vehicle for a fixed period or even for very long and so you might want to consider a rental vehicle rather than a leased or owned one.
We can help if you are interested in a business rental vehicle or want to learn more about this option.
What Happens At the End of a Business Lease?
At the end of a business lease, you simply need to get in touch with the funder a few weeks before the contract end date and arrange for the vehicle to be collected. If your employee is taking a replacement lease car then you can arrange for this to happen on the same day but the delivery and collection will be conducted by two different drivers so will not happen at the same time. Please be aware that if the vehicle is collected after the lease end date then you will be charged for any additional days that you have the vehicle for.
We recommend that you ask your drivers to check the vehicle for any needed work a month or so prior to return, to avoid any additional charges.
For a more detailed guide to what happens at the end of a lease take a look at this guide.
Whether you have an existing fleet you are looking to expand through leasing or are establishing a new fleet you might want to consider a fleet management company, such as Wessex Fleet, as part of the process.
A successful fleet management company will reduce the time and cost of managing the fleet, which can be additionally complex when you have lease vehicles with different contract start dates and lengths.
How Wessex Fleet Can Help With Your Fleet Management Plans
With over 15 years of experience in the industry, we've built up a wealth of knowledge and the skills to use this knowledge to our clients' benefit with bespoke fleet management that is tailored to their individual business' needs so that they are only receiving, and paying for, the services that their fleet needs.
This includes arranging vehicle supply, maintenance and all fleet admin.
To find out more about fleet management and how we can help you either visit our dedicated Wessex Fleet management page, request a callback, or give us a call on 01722 322 888.