Whole Life Costs
If a company is looking to lease a vehicle they should be considering the 'Whole Life Costs'' not just the monthly leasing amount. Simply opting for the cheapest rental is not the most accurate method for assessing the true financial impact.
Whilst the monthly rental is important there are a number of other factors that need you need to take into consideration. The true cost of a vehicle is NOT just based on the monthly rental but the 'Whole Life Cost' of the vehicle. The following factors should also be included in the equation:
- Vehicle List Price (P11d)
- Manufacturer / dealer discount levels
- National Insurance Contributions
- Fuel Economy
- Capital Allowances set by CO2 emission levels
- Corporation Tax - reduced by CO2 value
- Residual value
- CO2 emissions
- Service, maintenance & repair costs
- Non recoverable VAT
Some vehicles that are offered on a 'special offer' or at a 'discount' could end up cost you more in the long run, if you chose the wrong car. Remember a cheaper monthly rental doesn't necessarily mean that it will be the cheapest option for the business.
Depending on a companies fleet size Fleetadvice can negotiate with manufactures and dealers to ensure the best discount levels are achieved.
A business can deduct the full cost of finance rentals from taxable profits if a car emits 50g CO2 per km or less. for cars with higher emissions than this, there is a flat dis-allowance called the lease rental restriction, which is 15% of the finance rental, and obviously makes these cars more expensive over a typical three year lease agreement.
The true cost can only be measured by taking into consideration the following factors, the combination of lease rental restriction and capital allowances, the funding method, CO2 emissions, residual values, fuel usage, length of term and the fleet size.
Consider the following example:
If you start to look at the 'Whole Life Costs'' this can have a vast impact on your spending. in the example that you have just looked the driver was given a monthly allowance of £550 per month. With this in mind the driver would not be able to choose the BMW 3 Series as it would be outside their price range.
However the BMW 3 Series is actually the cheaper option when looking at 'Whole Life Costs' offering a saving of more than £54 a month over the Ford Mondeo.
The BMW 3 Series offers better fuel economy and lower monthly Class 1A National Insurance Contribution cost, so the business would benefit financially by offering this vehicle over the Ford Mondeo, which at first appeared to be cheaper. Consider the savings if you had a large fleet of vehicles.
In addition to the financial savings the business made, by choosing the BMW 3 Series the driver of the vehicle would benefit from lower Benefit-In-Kind taxation due to the vehicles lower CO2 emissions. The driver would also be given the opportunity to drive a more expensive and higher status vehicle, improving staff moral and motivation.