Though the choice of vehicles used by builders hasn’t changed much over the years, the way they acquire them has. Instead of buying for cash or taking out a loan, more and more builders now lease their vans because, for the same up-front costs of a second-hand van, they get a new one.
Leasing is all about how you do it, and what sort of lease you sign up for. The ‘how’ is either through a personal contract (for sole traders) or a business one (for business owners) while the ‘what’ is the kind of lease chosen.
This will depend on how flexible a builder wants the lease to be and includes, most importantly, whether they intend to buy the van at the end of the lease with a final lump-sum payment, or return it to the lease company. But roughly speaking, there are two types of lease.
After choosing which vehicle, it’s all about choosing the size of the deposit, contract length, maximum mileage and nailing down the fixed monthly fee.
Then, assuming the van is looked after and the maximum mileage isn’t exceeded, the vehicle will have a guaranteed value at the end of the lease. After it ends the builder then either walks away, buys it outright or uses its remaining value as a deposit on another leased vehicle.
During a contract purchase the builder usually pays the maintenance, insurance and other running costs including the road tax.
For builders who run their own limited company, there are business versions of contract purchase leases. The big difference is that by doing it through a business some elements of the cost can be offset against a company’s tax bill.
Whether it’s done through a company or personal contract hire, personal contract hire leases are just a fixed-term, fixed-mileage rental set at a fixed monthly price. The payments are tax deductible because they are a cost, like any other business expense. But you don’t own the vehicle at the end of the lease.
Before you go full lock-down with your van, you might want to check whether it will be affected by changes to government policy on diesel and petrol vehicles.
A significant downside of both a contract hire or lease agreement is that it requires the vehicle to be returned with only reasonable wear and tear and not be above the agreed maximum mileage. If these terms are breached, it can get expensive at the end of the contract.
If the terms of the leasing contract match the needs of your business, it can be tempting to go for a leasing option and the possibility of a shiny new vehicle. Before you sign up, remember to factor in running costs like road tax, insurance and make sure you’re aware of changes to government policy on diesel and petrol vehicles that could affect the overall total.