Every person you talk to about financing a van
will give you a different opinion; the ‘accountancy professionals’
will wrap it up in jargon and leave you none the wiser and the
marketing men will always show the lowest possible monthly, weekly
or even daily cost, but not give you the full picture.
Below are a few notes to help you:
Finance Products
Cash
Lovely if you can afford it! Could you
use the money you are spending more wisely by investing in your
business? If you are VAT registered you an claim the VAT back
in one lump at the end of the next quarter (100% on vans and 0% on
cars reclaimable). Normal tax write down rules
apply.
Hire Purchase
You pay a deposit and then the balance over an
agreed period at a fixed rate. At the end of the agreement
you own 100% of the vehicle. Most finance companies require
all of the VAT in advance and with the credit squeeze, an
additional deposit may be required. On an £11,500 van with a
10% (plus VAT) deposit you will need £3,487.50. Still the
most widely used form of funding and great if you can afford the
deposit. However, are there better solutions for your
business? Normal tax write down rules apply (Lease Purchase, PCP
and Contract Purchase are all forms of HP designed to reduce the
monthly payment or add value, but require the settlement of a final
payment or balloon at the end of the agreement).
Finance Lease
This has huge cash flow benefits, as you can
start with as little as 3 months rental in advance (that’s from as
little as £730.80 plus VAT on an £11,500 van). You claim the
VAT back each quarter as you go - no sudden drain on your business’
cash flow. You can have a lease from 24 to 60 months and use
options including a balloon payment to reduce your monthly
outgoings. At the end of the agreement you sell the vehicle
and keep the proceeds, or use them to fund the deposit on your new
van, subject to a final fee. Provided you can settle the
outstanding balance on the agreement it may be terminated
early. Your rentals will be 100% tax deductable. VAT is 100%
reclaimable on vans and 50% reclaimable on
cars. You never own the van, but you pay each
month to use it.
Contract Hire
For tax, VAT and deposit purposes, Contract
Hire works the same as a Lease. The agreement will have contractual
conditions regarding mileage and use, and can include a full
service contract and other support services. Go outside of
those conditions or return the van with damage and you may have a
bill at the end of the agreement. You cannot terminate a
contract without penalty. If you can predict the use of your
vehicle(s), require a full service agreement, or need a complete
package to support employees based in the field, contract hire has
great benefits at a fixed price. At the end of the agreement
you hand the vehicle back, you neither own nor owe, and the
agreement does not show as a debt on your accounts.
In summary then, all business users are
different. One size does not fit all. We can take
almost every finance example we give customers and make it look
cheaper, but this normally means deferring costs to the end of the
agreement and that’s not how we, at Northern Motors, do business.
We believe that anyone with a good credit history will be
able to enjoy the benefit of any of our finance offers.
The best advice of all… talk to your
Northern Motors Vauxhall Business Centre.