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What's The Best Way To Buy A Van If You’re Self-employed?
" SMEs and sole traders need to watch every penny, so we've explained the pros of buying or leasing a van for smaller operators."
SMEs and sole traders need to watch every penny, so we've explained the pros of buying or leasing a van for smaller operators.
Smaller businesses and the self-employed have to be particularly mindful of their costs and a van - or a small fleet of them - is a big investment. SMEs don't have the buying power of large companies, while sole traders have to pay for their vehicles from their own pockets, so it's vital to find the right type of funding. We've explained the key differences between leasing and outright purchase to help you choose the finance option that best suits your needs.
Big businesses like to lease their vans because it's simple and everything is bundled into a fixed monthly fee - and the same applies to SMEs and self-employed traders. You will probably have to pay a modest deposit, but you don't have to make a large one-off payment as you would when you buy a vehicle, so the costs are much easier to swallow.
A lot of lease contracts - though not all of them - include the likes of insurance and a maintenance package, so you can bundle the cost of just about everything except fuel into a single monthly payment, which is really convenient. If your business is VAT registered, then you can claim back some or all of the VAT you pay as on the monthly lease fee providing the van is used for business purposes - however, some van lease deals are advertised without VAT, so it's important to understand that beforehand.
At the end of the lease, you have the option to simply return the van or you can keep the contract going and get another one from the leasing company, which is a good option if you want a new or upgraded model every few years.
Many lease contracts come with stipulations about the amount of mileage you can cover. This should be made very clear at the beginning of the agreement - if it isn't then question it or walk away - and you will be liable for additional fees if you exceed the agreed mileage limit.
You don't own the van when you lease it - it belongs to the finance company - and there may be other conditions in the contract about exactly what you can and can't do with it. You might not be able to modify the van, for example, which could be a problem if you want to fit specialist equipment, such as racking.
You'll be expected to keep the van for the duration of the lease, so if your circumstances change then you'll either have to keep hold of it until the contact is over or pay an exit fee. You will also pay more in the long run if you lease a van than if you simply bought it.
The best thing about buying a van is that you own it outright and can use it as you please. It becomes a business asset, there are no mileage constraints or any other restrictions that come with leasing a vehicle and you can sell it whenever you want. If you buy it with a finance package such as a PCP deal then there may be some restrictions for the duration of that contract, but you will become the owner at the end of it (unless you trade it in and sign up to a new deal). You could also finance it via a bank loan, which wouldn't involve any restrictions on the vehicle itself.
Buying a van outright can make better financial sense than leasing in other circumstances. For instance, if you keep it for the same period of time as a lease contract then you'll pay less overall, because you aren't paying a monthly lease rate, which includes a layer of profit for the finance company.
That still happens if you buy with finance, but you'll own the van at the end of the contract, whereas this won't be the case with leasing. There are also some tax advantages: if the van is used for business purposes then you can offset the capital allowance against your tax bill.
There's always the option of a second-hand van, too. This can be a much more affordable way into ownership, while franchised dealers sell relatively young models under used approved schemes, which include the likes of warranties and vehicle history checks for extra peace of mind. It's usually possible to negotiate the price when you're buying either used or new from a dealer, too.
The biggest drawback to buying a van outright is the high up-front cost. You can obviously mitigate this by purchasing it with a form of finance such as PCP but you're almost certainly looking at a higher deposit than you would with leasing.
You also don't get the benefit of fixed costs. As well as the up-front purchase price, you have to cover your own insurance and maintenance, so the expenses are harder to predict. You'll have to soak up the significant cost of depreciation too, and you'll be responsible for selling the van when you're finished with it - you can't just hand it back to a finance company.