Vans are necessary for many kinds of business and for a small business of a sole trader the decision to buy a new van is a big one. It is a substantial investment and any mistake can be very costly. In this article we will consider some of the important issues that relate to purchasing and owning a commercial van.
New vans are not cheap. With the difficulties that many small companies experience when trying to borrow money from the bank, there is always the temptation to cut costs by buying a used van. For many who follow that route things work out, but there are always a proportion of companies that find buying second hand turns out to be a big mistake. An unreliable used van can cost far more money than originally was saved. Small vans do tend to come in for a fair amount of abuse and buying a used one can be quite risky.
Another consideration is how you might be perceived by your customers. They are far more likely to be impressed when you turn up in a smart new clean van rather than an old and slightly battered one. As you know, in any business customer perception is extremely important.
Many companies are choosing to lease their vans rather than purchasing them outright and leasing does have many advantages. Firstly there is no need to find a large sum of money up-front. There is generally a deposit to pay, but after that there is only a monthly payment. Also during the time period of the lease, you are paying only for the depreciation of the van rather than its full cost. At the end of the lease period you can opt to simply return the van to the dealer or extend the lease. Most companies do the former and replace it with a new one.
Another advantage of leasing is that all the costs of servicing, general maintenance and the replacing of parts such as tyres and breaks can be included in the lease. This can help with planning and it will mean that you won’t have to face unexpected expenditure that could damage your cash flow.
There are also accounting advantages to leasing rather than purchasing. When you purchase a van it is a capital item on your balance sheet and your accountant will depreciate it over several years. She will need to make claims against capital allowances in order to minimise your corporation tax. When you lease a van the cost of leasing it is simply a cost to the business that is charged to your profit and loss statement.
Finally you need to consider VAT. Generally with all commercial vans you can reclaim the VAT, but on some van derived cars, if they are used for anything other than commercial purposes, then only half the VAT is reclaimable. With a van lease, all of the VAT is eclaimable.
