Are You VAT Registered?

Before you consider what size and use of van you'll need and consider what your business can afford - there is a vital question that you must consider - are you VAT registered?

If you are, you can reclaim the cost of the VAT on the van in full in your VAT tax period. If you are not VAT registered, you cannot reclaim the VAT. If you hire or lease the van and are VAT registered, the rental costs will be calculated based on the VAT exclusive price and you will be charged VAT on those rentals, which can then usually be fully reclaimed in your VAT calculation. So if you are VAT registered, hiring or leasing your van makes good sense as it's very cost effective. At the end of your lease, you simply hand the van back and settle any refurbishment or excess mileage costs.

If you are not VAT registered though, don't despair. If you buy or hire-purchase your van, the cost of the van can usually be offset against your annual tax liability, and the interest you pay can also be offset against your business tax, as its a business expense. At the end of the hire-purchase agreement the van fully belongs to you, and you can either keep using it, or trade it for a newer van.

So VAT is a key consideration in assessing which finance method is best for you and your van. Your accountant will give you the best advice on what to do.

OK what are some of the other factors?

What do you intend to use the van for?

How long do you intend to use the van for?

And of course, crucially, how much money you have.

If you're only going to use the van for a few months for example, you're unlikely to want to purchase a van, however, if vans are a crucial part of your business, then financing a van could be a better option - it is all about what best meets your needs.

This blog looks to explore the different options so you can confidently choose the correct one for you. So let's begin!

Buying A Van

When you buy a van, it is yours straight away. That may seem obvious, but it is an important factor. Owning the van means that you are responsible for all of the associated costs of maintaining the van, from safety checks to paying when things go wrong, the buck begins and stops with you.

There are also a few other benefits of buying your van:

  • When buying a van you're able to negotiate the best price option. That means you can get the best deal possible.
  • As you own the vehicle you also have the option to sell it once it has reached the end of its purpose to your business - though you will need to consider vehicle value depreciation.
  • If there are any repairs needed to be made you are able to shop around to find the best prices - helping you keep costs low.
  • The cost of VAT on the van can be reclaimed, if you are VAT registered.
  • The depreciation of the van can usually be considered a business expense in your accounts.

For many people though, having the liquidity to buy a van or even a fleet isn't a viable option. This is where van financing can help.

Leasing A Van

Leasing a van for business is a great option of financing a van when you don't have the money to purchase. Leasing a van usually requires an initial payment up front, followed by regular monthly payments that will include VAT. The length of a lease is usually over a number of years so it is a mid to long term solution. There are two types of lease available: an operating lease and finance lease.

An operating lease is where the leasing company takes the risk and reward of ownership of the future used van value, and you as the lessor simply hands the van back at the end of contract, making good any contract rules like excess mileage and the van's condition.

A Finance Lease is where the lessor takes the risk and rewards of ownership on the vans future value. This means that at the end of the lease term, the lessor can either extend the lease, or sell the van on behalf of the leasing company, pays off any balloon (or final rental) amount, and either keeps the profit on the sale, or has to absorb the loss on the sale.

Both finance leases and operating leases are business contracts and there are some tax benefits of these contracts, including the ability to reclaim or offset the cost of VAT on the rentals.

These leasing products are aimed primarily at newly registered vans, and for companies who have a long standing and positive credit history. But what happens if you want an older vehicle or your credit rating is poor? In this instance the primary method of financing would be through hire purchase.

Hire Purchase

Using a Hire Purchase for your van financing is the method offered at Advantage Finance. If you are VAT registered and can reclaim the VAT cost of the van, you will be expected to pay the VAT as a deposit as a minimum. Essentially you'll take out finance against the value agreed with the dealer for the van and make monthly payments. This can mean that the monthly payments may be high. Think of it like this. You contact Advantage Finance about financing a van. Advantage Finance buys the van from the dealer and then "hires" the van back to you to purchase at the end of contract. These would be your monthly payments. Any interest you pay, can be considered a business expense and offset against any tax bill. In this case, the value of the van would be your balance sheet so you can reclaim the cost of depreciation.

Credit Ratings

If you choose to finance your van, your credit score will play a part. In some cases an unfavourable credit score can increase your APR% and therefore your overall payments or even mean you don't get accepted at all. If your credit score isn't the best then don't worry, Our aim is to make finance affordable for everyone. So be sure to read up on our van finance. As well as all of these benefits, it is important to remember that financing isn't for everyone. You must carefully consider your financial situation and ensure you can keep up with the required payments.

Hiring or Renting A Van

In many ways hiring a van is very similar to leasing a van. Both require you to pay a monthly fee plus VAT in order to use the vehicle. Hiring a van however offers greater flexibility, with the ability to hire vans for just a day, all the way up to months or years depending on your requirements and who you hire with.

Other factors, which would usually cost you money are also taken out of your hands. When you hire a van, insurance, tax, and servicing will be done by the hire company. Some hire agreements may even allow you to return the van early, if a potential job was to fall through, which would help you to save more money vs the other options.

Because the hire company takes on these additional costs and responsibilities, the weekly costs associated with hiring a van are often higher than through van finance, however if you require flexibility with your van or only need it for a short period of time it is a great option to consider.

So, Should You Hire, Buy or Finance A Van?

We hope this guide has given you a little insight into the different options available, and has helped clarify what option is best for you. Ultimately the deciding factors are likely to come down to your financial liquidity and how long you'll need the van for. If you are looking for a short term solution then hiring is likely to be the best way forward. For medium or long term commitments buying or financing will be better in the long run. Tax is a key consideration though for van finance, make sure to speak to your accountant to get the best advice for your Business.

Financing your Van Hire

If you have decided to use finance options to get your new van we would love the opportunity to help. Head over to our website today to get started on your quick and easy van finance application. For more information, call 01472 233200 to speak to a member of our helpful and friendly team.