This blog has been updated for 2018 with information about the tax advantages of buying or leasing a van, to help our tradesmen make an informed choice on what’s best for their business.
It goes without saying that you won’t get very far in your business without a van – and we’re not just talking literally. Like the chariots were to the Roman gladiators and like that famous black-and-red GMC Vandura was to the A-Team, your transport is vital to your success.
So, when it comes to getting a new one, it’s not something to be taken lightly.
There’s fuel costs, insurance, and all manner of things in between to think about. Yet, if there’s one decision that should be right at the top of your priority list, it’s whether or not you’re going to paint it up like the A-Team Van.
Just kidding! It’s whether you’re going to buy or lease your new van.
Here, we weigh up the pros and cons of both to help you decide which is the right move for your business.
To lease or not to lease
That’s the question we’re looking at today, so let’s start with a look at some of the benefits, shall we?
For one thing, leasing a van for your trade business means you’ll need less initial capital than if you were buying outright.
That’s not to say you won’t need any money up front, but the initial outlay is going to be a lot less. For new businesses and those with limited budgets, this can often mean that the same amount of money that would only get you a beat-up old banger if you were buying outright can actually get you a quality vehicle that performs well and looks professional – providing you can keep up with the monthly repayments.
Then there’s the maintenance to take care of.
Let’s face it – as a busy tradesman, you’ll be getting a lot of usage out of that van. The more you use it, the more time and money it’s going to take to keep it in top condition.
When you buy a van, all the responsibility – not to mention the cost! – of servicing and maintenance falls to you. With a lease, however, you’ll likely find that these things are included in your contract, so it’s one less thing for you to worry about.
Still, even with the best maintenance in the world, there’s no escaping the fact that, at some point down the line, your van is going to become fit for little more than a starring role on a revival of Scrapheap Challenge. When that happens, trying to sell a van that you own but has seriously depreciated in value can be an impossible challenge.
When you lease, on the other hand, that’s obviously not a problem; simply wait until the end of your lease agreement and move to a new model. Sounds pretty good, right?
But if leasing a van is really so great, why would anybody ever consider buying one?
Well, there are a few advantages to owning your own vehicle, and we’ll look at those next.
Buying a van for your trade business
Sure, buying a van outright might mean a larger investment in the beginning, but here’s the one big difference:
Once you’ve made that investment, that van is yours. It’s a valuable asset for your business that you own 100%, that you can sell on, upgrade, or do anything you like with.
Compare that to leasing, where, unless you’re on a lease-to-buy plan, you’re basically spending money every month on something you’ll never own, and buying seems to become a worthy investment. Leasing also means spending money on something that you may not necessarily be free to do as you like with.
Here’s the thing – a lot of lease agreements come with certain restrictions, especially with regards to mileage. As a growing business, can you really afford to be limited in how many miles you can do?
Buying outright means no restrictions, leaving you with the freedom and flexibility to work anywhere, as often as you like, and really start to grow your business. It’s also likely that you’ll find it more affordable in the long-run. After the initial payment, the only things you’ll have to worry about are things like running costs, van insurance, and maintenance charges, most of which can be offset against tax, ultimately saving you in the long-run.
Best of all? When you own your own van, you’re free to paint it up like the A-Team Van. You know – if you really want to!
So, we’ve run down the various pros and cons of buying or leasing a van, but there’s still one to look at – the implications on tax. There are various advantages whether you buy a van or lease it, but which makes more sense for your business is entirely down to personal preference.
When you buy a van, you can claim the cost of it against your income tax bill, but how you go about this will depend on how you pay tax. For those using traditional accounting, you can claim your van as a capital allowance. For those using cash basis accounting, this is almost the same unless you’re using simplified expenses.
By contrast, if you lease a van, you can claim up to 100% VAT back on the monthly payments if your business is VAT-registered – provided your van is only used for business use. As with buying a van, you can also claim the cost of the van rental as an expense when filling out your tax return. These rental payments can be classed as a tax-deductible expense.