What to consider when getting a company car

More and more people in the UK are taking additional driver training and buying and leasing company cars – particularly light commercial vehicles (LCVs). At the end of September 2018, there were 38.4m company vehicles licensed for use on Britain’s roads and 31.6m company cars (source: RAC). The volume of LCVs (ie vans and trucks weighing less than 3.5 metric tons) grew by 2.6% in the year to September 2018, significantly more than any other vehicle type.

The number of vans on Britain’s roads has been rising more than 2.5 times quicker than cars, with every tenth vehicle now an LCV, which amounts to almost four million (source: RAC). If you’re considering getting a company vehicle for your business, you must ensure that you have an inspection checklist on hand and request information on the the following: external vehicle condition, vehicle interior, function checks, driver training and incident reporting.

See below for several questions you should be asking as part of your vehicle checklist:

Is the size of a company vehicle an issue?

A fleet manager can often assume that you’ll need a larger business vehicle if you’re going to be carrying around materials and tools/equipment, which is why many tradespeople opt for vans (although some use estates or pick-ups). However, some smaller vehicles have large boot and load spaces so would equally be suitable for the job. For deliveries, you’ll need something that’s big enough for your products, but not too big as to add to your fuel costs unnecessarily.

Smaller vehicles, like a car or van, often use less fuel and may be easier to drive, which might better suit you. Parking is often easier, too, which is important if you make a lot of deliveries in built-up areas. Larger vehicles can offer more protection if you crash – ensure that you check your vehicle has an operational warning light – but you may not want a big van parked outside your house at night or on weekends.

Ultimately, you’ll need to assess your business needs and figure out the most appropriate sized vehicle. Don’t forget to take advantage of your local fleet manager and ask all the necessary questions before making your purchase.

Do I need the vehicle for business and personal use?

Many people can only afford one vehicle, which they use for business and personal. You may not want to make personal journeys in a big van where windscreen windows are compromised, and which may not be ideal for carrying children either. Even if you’re happy to go for a larger vehicle, other family drivers with a valid drivers license may not. Alternatively, a smaller business vehicle might not be suitable for your hobby or other leisure uses. Some compromise might be necessary, because a vehicle that’s perfect for work may not suit personal use, or vice versa.

Should I buy or lease my business vehicle?

For a relatively small upfront initial payment, followed by monthly payments, leasing gives your business use of a brand new vehicle, with full manufacturer’s warranty. Buying offers the benefit of owning the vehicle outright. Both options have their pros and cons.

Leasing

Pros	Cons
Usually cheaper upfront.	Committed to monthly repayments.
Can claim back 100% of VAT if the vehicle is just for business.	Might be restricted to an agreed annual mileage.
No depreciating asset on your books.	The vehicle is not yours to sell.
Leasing companies often offer very competitive deals.	Maintenance costs are usually an extra cost eg. services, new tyres etc.
Easy to agree new leasing deal at the end of the contract.	May be a cost if you end the contract early.

Buying

Pros	Cons
You own the vehicle.	More expensive upfront.
Purchase cost is tax deductible.	Difficult to find funds to cover initial outlay.
Sell the vehicle whenever you want or need to.	Vehicle can lose value quickly.
Keep the profits from any sale.	Maintenance costs may increase as the vehicle ages.
No rules around mileage.	Hassle to find a buyer and sell the vehicle.

You’ll need to consider the above factors and your inspection checklist, while also assessing your business circumstances. Carry out comprehensive research, get detailed quotes, shop around and get advice from both your accountant and fleet manager. You need to work out the “whole life cost” of a vehicle when seeking to find the most cost-effective option. This takes into account all relevant factors, including acquisition price (if buying), depreciation, servicing and maintenance costs, tax and running costs (including fuel).

Arval’s interactive Lease Vs Buy calculator will help you compare the costs for different vehicles.

Which engine technology is right for me?

There are a number of engine technologies to choose from including:

Petrol
Diesel
Electric
Plug-in hybrid
Hybrid

Petrol and diesel you’ll know about, but now there are alternative engine options that are worth considering.

Electric cars do what they say on the tin, and are powered purely by their battery. These need to be plugged into an electricity source between uses to recharge and will have a limited mileage range depending on which model you choose.

Plug-in hybrids have a small on-board battery which can be charged up using an external electricity supply, and, depending on the vehicle, have a range between 18-30 miles on electric. When the battery is discharged the engine is used to power the car. As these vehicles are typically heavier than traditional petrol/diesel cars their Miles Per Gallon (MPG) is generally lower on longer trips.

Hybrid cars have an internal battery which harnesses energy from the engine and regenerative braking. This battery can then be used to power the car for very short distances, 1-2 miles, at very low speeds, <15mph, so can save fuel when used in congested traffic situations.

Ultimately this will depend on several factors:

How and where will you be using the vehicle?

If you do not have the ability to charge an electric car up then a petrol/plug-in hybrid or the hybrid engine would also work.

If your trips are split between short urban journeys and occasional motorway trips then a plug-in hybrid, hybrid or a petrol engine would be suitable, bearing in mind the MPG in a plug-in hybrid would not be as efficient on a longer trip.

For regular longer trips on high-speed roads, a diesel or hybrid or petrol vehicle would be suitable. Diesel vehicles generally have better MPG performance on long motorway journeys and some of the new diesel engines (Euro 6) are as clean as their petrol counterparts.

Are you regularly driving in congestion zone area?

For example, in London from 8 April 2019 to 24 October 2021 new, tighter standards will be in place for company vehicles to pass all function checks and qualify for the new Cleaner Vehicle Discount. Vehicles must meet the Euro 6 emission standard, emit no more than 75g/km CO2 and have a minimum 20 mile zero emission capable range.

Vehicles that do not qualify will pay a daily charge to enter the congestion zone. Whilst this has been in place for a number of years the rules have recently changed.

Do you use your vehicle in a clean air zone or future clean air zone?

Many clean-air zones do not apply a charge if your car conforms to certain standards, i.e. a Euro 6 diesel or Euro 4 petrol technology.

Do you regularly tow using your vehicle?

As plug-in hybrids are generally heavier than traditional petrol or diesel cars the weight they can tow is reduced, the vehicle manufacturer can advise you of the limits.

Inspection checklist: How can I reduce my company vehicle running costs?

Outside of lease, maintenance, insurance and fuel costs, most of the other expenditure is directly linked to the amount of CO2 the vehicle emits. Many people try to choose a vehicle with the lowest possible CO2 emissions in order to save on costs. There is a direct relationship between the CO2 and fuel economy. Generally the lower the CO2, the higher the MPG is as CO2 output is measured as a result of burning fuel to move the vehicle. So, in theory, choosing a low CO2 should result in reduced fuel costs.

This CO2 output is then used to determine other costs associated with running the vehicle, these include:

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Vehicle Excise Duty (VED or Road Tax)
The government publish table to show how much road tax is due in the first year and subsequent years and is determined by the CO2 output of the car.

Benefit in Kind Tax
If the vehicle is provided by a company to an employee who uses the car for private use then the employee is liable for benefit in kind tax. This is calculated by taking the CO2% rating of the vehicle the P11d value of the vehicle the individual’s tax bracket.

Class 1a National Insurance
Again, this is payable by a company who is providing a company car to an employee. Again, this is calculated by taking the CO2% rating of the vehicle the P11d value of the vehicle 13.8% (the current rate for businesses). This cost is often overlooked by companies.

Capital Allowances
If a company purchases a vehicle for business use then depending on the CO2 output the car they can offset some of the cost against their corporation tax payments on their annual profits. The lower the CO2 the higher % they can offset. If a company leases its vehicles the leasing company would generally factor this into their rental calculations to pass this benefit on to their customers.

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