Don't buy a car for your business - rent one instead

If you don't want to buy a business vehicle you can get very good hire rates on long-term car hire which provide a flexible and cost-effective option.

Buying a business vehicle

It's an option if you've got the funds available or want to take out a business loan to buy a car.

Advantages of buying your own business vehicles

• You're the legal owner
• It's a business asset
• You should be able to deduct the bank interest and capital allowances from your taxable profits

Disadvantages of buying your own busines vehicles

• You'll have to cover maintenance and road tax costs
• There's no guarantee of how much you'll get when you decide to sell it

Buying a vehicle using Hire Purchase

You'll usually pay an initial deposit and pay the rest via monthly payments over a set period of time.  At the end of the period there's usually an option to pay a final 'option to purchase fee' and the vehicle is yours.

Advantages of buying a vehicle via Hire Purchase

• No large up-front costs
• You don't bear the financial risk of the car's drop in value
• You can set the option to purchase price at the begining of the agreement
• You should be able to deduct bank interest and capital allowances from your taxable profits

Disadvantages of buying a vehicle via Hire Purchase

• You'll end up paying more than the car's value
• You don't legally own the vehicle unless and until you've taken up the option to purchase
• For cars, the VAT paid is generally not recoverable from HMRC

Leasing a business vehicle

Leasing a vehicle is like renting it for a set period of time, at the end of which you can return it or pay an option to purchase fee and the vehicle is then yours.

Advantages of leasing a business vehicle

• No large up-front costs
• You don't bear the financial risk if the value of the car at the end of the agreement is lower than expected
• You can set the option to purchase price at the begining of the agreement
• You should be able to deduct rental payment from your taxable profits
• Maintenance and road tax charges are often included in the monthly fee

Disadvantages of leasing a business vehicle

• You don't legally own the car
• You can't deduct capital allowances from your taxable profits
• There's usually annual mileage limits and you'll incur hefty penalties if you exceed them