You’re thinking of getting a car for company use. There are lots of good reasons to do this. If it’s only for your own use, it could work out cheaper than the cost of buying a car privately, because you will be able to write off part of the cost against tax. If it’s for the use of several different company representatives, you’re likely to find it cheaper to insure than a privately owned vehicle used in this way. Having a company vehicle or vehicles means that you have more control over the image that your business creates – you won’t have to worry about your representatives turning up to meet clients in battered older cars and making a bad impression. However, if yours is a small or medium-sized enterprise operating on a tight budget, a company car represents a big upfront expense. What can you do to make the cost as manageable as possible?
Buying a car
When buying a car, the first thing that you need to think about is tax. Some vehicles qualify for tax breaks and others don’t, so discuss this with your auto dealer and choose carefully. You can choose whether to write off either actual costs or mileage as a business expense, and you will have to stick with your choice for the lifetime of the vehicle – which will depend on the particular vehicle that you want. Once you have factored in both taxes and payments, buying is usually the cheaper option, but the cost saving comes only over the long term, and it may be more useful to your business to have more money in the short term.
The best thing about owning a company car is that it will be entirely up to you how much you drive it. You can upgrade it as desired, and you can put your logo on the side of it so that people will see your company name wherever you go.
Leasing a car
The most common way to lease a vehicle for your business is through an operating commercial lease. This is a popular option with small businesses because it means that you can immediately declare lease payments as operating expenses, which means that there is effectively no delay in reclaiming the money. It also keeps things simple because you will have a predictable monthly payment to make, and the leasing company will take care of any unexpected expenses. You will be obliged to stick to an agreed mileage limit, however, and there may be other restrictions on how you can use it. You’ll also need to check the contract carefully for hidden fees, especially in relation to the residual value of the vehicle.
If you take out a capital lease, you will part-own the vehicle and will have the option of buying it at the end of the term – more expensive than buying outright but with a lower upfront cost. You will still be able to claim interest on lease payments against tax, and you will be able to claim for the depreciation in the value of your asset, but the car will count as an asset.
If you’d really like to buy a car but you’re struggling to find the money upfront, it could still work out as the most financially practical option if you can find a good financing deal. In some types of business, your own credit record can be taken into account by lenders; in others, your company will have to build up a record of its own from scratch, which can put you in a challenging position during the early stages. It is possible, however, to get a zero credit or even a bad credit car loan without paying over the odds as long as you find the right lender. If your company is seen to have potential, lenders may want to make you happy because of the value that your future custom could have, especially if you hope to go on to purchase multiple company vehicles.
Costs to consider
When you’re calculating your company car budget, bear in mind that the vehicles themselves will not be your only cost. If you’re buying, you’ll also be liable for insurance and for any excesses incurred by accidents. Whether buying or leasing, you could also face a liability risk, which is why some business owners set up additional companies expressly for the purpose of providing vehicles, which prevents liability costs from landing on the company as a whole.
The good news is that the complicated part of sorting out a company car is all upfront. Once you’ve dealt with it, this is one area of the business that’s likely to run smoothly, freeing you up to concentrate on core aspects of your business.