From eligibility to tax benefits, Nationwide Vehicle Contracts talk you through everything you need to know about van leasing for Sole Traders
For businesses such as sole traders, partnerships and limited companies, van leasing offers an alternative, often cheaper, funding solution to buying a new van with a bank loan or dealer finance.
There are many benefits to van leasing vs buying as you can see here:
- Low initial rental helps to avoid huge up-front costs
- Fixed monthly rentals for the term of the lease make budget planning easier
- Flexible duration and mileage terms to meet your needs
- Maintenance, servicing and tyre packages can be included in monthly fee
- Road tax is included for duration of the agreement
- No depreciation risks or disposal concerns
- Full manufacturer warranty offered as standard on all vehicles
- Enjoy a new van every 2, 3 or 4 years (subject to status)
As a Sole Trader, there are also considerations that you need to keep in mind before entering a van leasing contract such as early termination charges, mileage restrictions, Fair Wear and Tear contracts, and insurance requirements. To help you decide if a leasing contract is right for you and your business, Nationwide Vehicle Contracts run through some frequently asked questions asked by Sole Traders when it comes to van leasing.
Can I lease a van if I am a sole trader?
Of course you can. Business Van Leasing is open for any business as long as they can meet our requirements as a leasing company when it comes to financial matters.
It should be noted that, for both business and personal finance applicants, most funders ask for a good to excellent credit score in order to be accepted. So let's take a look at what they require.
Am I Eligible for Van Finance?
When you apply for van finance, you will need to undergo a credit check as part of the finance application process. The information you supply on the Business Finance Application form is then used by the lender to make a decision about whether or not you are eligible for vehicle finance.
On the Business Finance Application form, you will be asked to provide the following information:
- Company details – including name, address, company reg. number and annual turnover
- Sole Trader details – including name, date of birth and marital status
- Business bank details – including bank name, account number and sort code
On top of this, in certain cases, such as your business being less than a year old or if you have been refused vehicle finance before, you may be asked to provide additional information such as:
- 3 months’ business bank statements
To find out if you are likely to be accepted for finance, take our short Am I Eligible for Business Leasing quiz.
What is the difference between Finance Lease and Contract Hire?
Another thing to consider is what sort of leasing contract you wish to enter into as there are different types of contracts available.
Finance lease offers both flexibility and tax advantages where you have a choice of how and when to pay - within reason.
You can choose to pay either the entire cost of the vehicle, including interest charges, over an agreed period; or you can pay lower monthly rentals that will leave with a final 'balloon' payment at the end that is based on the anticipated resale value of the vehicle. This latter option is particularly attractive to sole traders and companies in their infancy as it allows them time to build up finances to make the final payment rather than higher costs throughout the lease. Throughout the agreement, the vehicle remains the property of the leasing company.
The key benefits of finance leasing include:
- Fixed payments for the whole agreement
- Low up-front costs – for just a small outlay, you can use the assets immediately
- Claim up to 50% of the VAT on cars and 100% on commercial vehicles (subject to being VAT registered)
- Flexible repayment structure tailored to match your company’s cash flow
- Fixed or variable interest options – you decide which suits you best
- Tax advantages – VAT is payable on the rentals, not the purchase price, while payments can normally be offset against taxable profit (special rules apply to cars)
- No penalty charges for additional mileage or damage at the end of the agreement
- Although you will not own the vehicle, you will receive 98% of the sale proceeds if the vehicle is sold to a third party at the end of the agreement
Contract hire allows you to rent the vehicle in monthly instalments over the contract period before returning the vehicle to the leasing company for them to dispose of as they wish, leaving them to worry about depreciation values and disposal.
Throughout the length of the contract, the lender remains the owner of the vehicle, meaning the vehicle appears ‘off the balance sheet’ of your company (for companies that do not report under IASB). These fixed monthly rentals cover the rental of the vehicle, plus any maintenance options if chosen, and are calculated by taking into consideration the cost of the vehicle, the length of the contract, how much the vehicle is likely to be worth at the end of the contract, the Mileage allowance that you choose before the start of your contract, and any additional options, such as a maintenance contract.
The key benefits of contract hire for business include:
- Low initial rental
- Fixed rentals for the whole package, making budget planning easier
- Flexible terms to meet your company’s requirements, with variable contract duration and mileage terms
- Contract hire removes depreciating assets from your company’s balance sheet, and the associated risks of owning vehicles, such as depreciation and disposing of the vehicle
- Maintenance of vehicles can be included in the monthly fees, spreading the cost
- Flexible invoice arrangements help to considerably reduce administration
- If yours is a VAT registered company, you can claim back 50% of the VAT on the finance element
At the end of the contract, the vehicle is returned to the leasing provider, meaning you are then free to hire another vehicle or vehicles, without any financial obligation. Contract Hire allows you to concentrate on your business's activities, while avoiding the financial risk and administrative burden of owning your vehicle or fleet.
What are the tax advantages of leasing a van?
When it comes to Van Leasing, the tax benefits vary depending on the type of lease that you have taken the van on and whether you are VAT registered.
- When leased under a Contract Hire lease, all rental payments are treated as a tax-deductible expense in the profit and loss accounts, with any VAT reclaimable (subject to VAT criteria being met). The van is not capitalised in the balance sheet as the business is considered to be simply hiring a vehicle for a contracted period.
- If the lease is a Finance Lease, you will can offset any interest charged against the annual profits, with the van capitalised as a fixed asset. The annual depreciation charge plus any interest payable under the lease can be claimed as an allowable deduction for tax purposes. The amount of VAT that is reclaimable by a company or owner depends on how much of the vehicle’s mileage is driven for business (80% business mileage = 80% VAT reclamation).
Can I add sign writing to the van?
Yes you can, as long as it is taken off when the van is given back at the end of the contract, and any removals of it hasn't caused any damage to the van.
What about Fair Wear and Tear?
At the end of your lease agreement, your van will undergo a detailed inspection by the finance provider who will check the interior and exterior condition of your vehicle carefully for any damage that falls outside what is deemed as ‘fair wear and tear’.
This is any damage that has happened to the vehicle outside of any agreed normal use as stated in the terms and conditions of fair wear and tear that you sign at the start of the lease. If any excess damage is found, you will be liable for any charges, also known as “de-hire charges” or “lease-end penalty charges”.
To help make fair wear and tear guidelines clearer, the British Vehicle Rental and Leasing Association (BVRLA) provide a guide to help make the rules clear, easily understood and fair.
Basically, the Fair Wear and Tear Guidelines concern:
- Vehicle body and paintwork (including the removal of any advertising stickers
- Loading area
- Sills and door seals
- Grille and bumper
- Glazing and lights
- Mirrors and external fittings
- Interior condition (including cleanliness)
- Tyre wear and wheel rims
- Mechanical condition
- Documentation and keys