Funding Options
Autoprocurement works with you to select the best solution for your business and provides vehicles using a number of different funding options summarised below. To help choose the right funding option or for more detailed information please contact us.
Basic business funding descriptions
There are many terms used to describe the funding products available for businesses today. The finance industry has further confused the issues with product names such as Finance Lease and Contract Purchase which seem a contradiction in terms. Despite all these products and terms business vehicle finance can essentially be split into two main branches of ownership and lease.
Ownership – Where the asset or vehicle is owned and registered in the name of the company or business using the vehicle. i.e. Hire Purchase
Leasing / Rental – Where the asset or vehicle is owned by a third party i.e. leasing company and is then rented via a contract to the company or business.
Ownership Product: With a Lease Purchase arrangement you agree an end of contract balloon payment which is normally based on the anticipated re-sale value calculated to account for the mileage & condition of the vehicle. This is then subtracted from the initial vehicle price before monthly payments are calculated. In essence, you are then financing the depreciation plus interest rather than the outright purchase of the vehicle. Please note that when using this finance method, VAT can only be recovered on commercial vehicles.
Hire Purchase is perhaps the most well known form of financing any asset that you do not wish to pay for outright. When choosing this option, you are taking out a loan to pay for the vehicle which you then settle through regular monthly payments covering the cost of the vehicle together with the agreed interest on the loan. Businesses choosing a HP arrangement should note that VAT is only recoverable in relation to commercial vehicles.
Benefits
- Purchase cost may be Corporation Tax deductible through Capital Allowances
- Interest elements of monthly payments may be Corporation Tax deductible
- Can benefit from higher residual values
Against
- At risk from lower residual values
- Outstanding instalments appear as liability on the balance sheet
- Vehicle appears on the balance sheet
- Not VAT efficient
Ownership Product: This can apply to both businesses and private individuals alike and involves paying a fixed monthly payment throughout the duration of the contract. At the start of the agreement an end of term value is agreed taking into account mileage and duration, which gives you the option to buy the vehicle outright, refinance the remaining amount or simply hand the vehicle back and walk away. Using this method, there is no VAT payable in relation to the finance payments, however VAT is applied to any optional services such as maintenance.
Benefits
- Fixed monthly payments
- Purchase cost may be Corporation Tax deductible through capital allowances
- Interest elements of monthly payments may be Corporation Tax deductible
- Can benefit from higher residual values
Against
- At risk from lower residual values
- Outstanding instalments appear as liability on the balance sheet
- Vehicle appears on the balance sheet
- Not VAT efficient
Leasing / Rental Product: When you choose a Finance Lease, you get a tax efficient solution which gives you the ability to finance the entire cost of the vehicle, including any relevant interest payments, over a fixed contract period. Alternatively, you can pay lower monthly payments and then a final ‘balloon’ payment on completion of the contract. As with Contract Hire, at least 50% of the VAT is recoverable, depending on the amount of personal usage.
Benefits
- Fixed Monthly rental
- 50% of VAT can be claimed on the finance element
- 10% of VAT can be reclaimed if LCV or HGV
- Rental are usually Corporation Tax deductable
- Potential to carry on using the vehicle at the end of the primary lease period
- Additional line of finance that may not affect existing lines of credit
- Vehicle appears as an asset on the company
Against
- Risk of fluctuations in the used car market
- Monthly rentals appear as liability on the balance sheet
Leasing / Rental Product: This is one of the most popular ways of funding your vehicle and essentially involves hiring rather than owning the car. This can be a tax efficient option for many businesses and provides peace of mind through fixed monthly charges for the duration of the contract. In this case, rentals are either fully or partially deductible against corporation tax and depending on the level of personal usage, at least 50% of the VAT is reclaimable.
Benefits
- Fixed Cost Motoring
- Frees up Capital
- Steady Cash Flow
- Minimal Administration
- 100% of VAT is reclaimable where the vehicle is used only for business
- 50% of the VAT on the Finance element is reclaimable and 100% of the Service & Maintenance can be reclaimed if there is any personal use.
- Commercial Vehicles LCVs & HGVs 100% of the VAT is reclaimable
- Rentals are usually Corporation Tax deductible
- Additional line of finance that may not affect existing lines of credit
- Eliminates most of the stress and or financial risks of ownership
Against
- No asset value
- Need to estimate time and mileage to a reasonable degree of accuracy
