Company Cars: Should You Buy or Lease?

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Offering company cars to employees has been a popular practice for quite some time. Company cars are popular with small and medium enterprises. They are beneficial to both the employer and employee. In particular, employees at management level and sales personnel often receive a company car as part of their benefits package. It’s an excellent incentive to encourage improved performance. And there are other benefits to company cars too, such as tax benefits. Many businesses also find that it’s necessary to give their employees company cars so they can carry out their jobs properly. They may not fill a role where the main task is driving.  But people in a wide range of industries need to drive from place to place to carry out everyday tasks, attend meetings and conferences or even just to get to work.

There are two main options for including a company car in your employees’ benefits packages: leasing or buying. Each has their advantages and disadvantages, and there is no one option that will be right for every business and purpose. Which one will suit your company best will depend on how long you plan to keep the vehicle? You should also consider how many miles your employee will drive it in a typical year.

If you decide to buy company vehicles, it involves purchasing the car outright. You make a down payment, pay sales taxes and make payments towards the vehicle if you’ve financed it. Once you pay the car off, you own it and can decide to sell or trade it if you wish. However, leasing involves paying only a portion of the vehicles costs. You might not have to make a payment upfront, but you will have to pay sales tax on monthly payments and a monthly fee for leasing a vehicle. When the lease finishes, you can return the car or buy it outright.

Vemma BMW and Mercedez Benz - Company Cars

Why Lease?

There are many benefits to leasing instead of buying when it comes to company cars. To begin  with, leasing vehicles offers a tax advantage. As long as your business only uses the vehicle for business purposes, your full monthly payments and the costs of running the vehicle are deductible. If you buy a vehicle, it must be depreciated over a number of years. But watch out if your employees will use the vehicles for personal use, as well as business use because the same rules won’t apply. Typically, initial costs are also much lower if you decide to lease instead of buy. You can save even more money through leasing on the cost of maintenance and repairs. These are usually included in the cost of leasing, whereas if you own your vehicles you have to pay for any repairs yourself.

Due to the nature of leasing, you can always have a fleet of up-to-date, new cars. After two or three years you can return the vehicles to the leasing company. Doing this rules out the need for trying to sell off older vehicles. You can always use cars that are no more than a few years old and won’t lose money selling off old cars. However, you won’t be building any asset value, and you won’t be able to customize your vehicles if, for example, employees use them as service vehicles.

Why Buy?

Buying can be a better option if you’re planning to keep your vehicles for at least five years. Up until the five-year mark, leasing is a good option, but the financial benefits decrease after that. There are other, short-term benefits to buying too, apart from the long-term financial ones. If you need to customize your vehicles, buying is the most appropriate option. Leasing may not be best if you need your vehicle fleet to be branded; if you buy your vehicles, you can customize them however you like.

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Leased vehicles may also have limits on annual mileage, allowing 12,000 to 15,000 miles per year. When the leaseholder uses cars more extensively than the limit, leasing companies charge a fee by the mile. If you need your vehicles for extensive use, it could be better to buy and avoid these charges, which will make leasing less financially viable. Another way you might be able to save money is by buying eco-friendly vehicles, such as hybrids. You may be able to receive tax breaks when you buy some hybrid cars, but check what’s available to you.

Which Option is Right for Your Business?

After reading the advantages of both leasing and buying, you may still be wondering which is best for you and your company. Should you lease Audi cars for your business or buy them? To work out which is best for you and your business, you need to decide what is most important to you. Leasing is best for you if you want to renew your fleet every two or three years and would like to make lower monthly payments. Lease vehicles are also always under warranty. But you need to be planning on driving a low number of miles and can’t customize your vehicles.

However, if you want to build asset value you should buy, so you have long-term ownership. Although the monthly payments are slightly higher, if you want to commit to a vehicle for five years or more, you should buy. There are higher financial risks, considering you are responsible for any repairs not under warranty. But owning your vehicles allows for customization and driving a higher number of miles.

Many companies will find that leasing vehicles suits them just fine. But if you own a business that relies heavily on a fleet of vehicles, you should consider buying. The ability to customize your vehicles and the use of a larger mileage are big bonuses for businesses such as sales or service companies. However, businesses those are more concerned with their finances and liabilities in the short-term are better off leasing instead of buying. It’s not necessary to buy a fleet of cars if you’re happy to renew them every few years.

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