I'm confused by all the different funding models. Who can help?
Fleet funding models can be complex, we have an overview here Fleet Products - Lets Talk Fleet but I can break down the main types for you and highlight the pros and cons of each. Here are the common models:
1. Outright Purchase
- Description: The company buys vehicles outright, owning them completely.
- Pros: Full ownership, no finance costs, and flexibility to customize the fleet.
- Cons: High initial capital outlay, vehicles can depreciate quickly, and you bear the full burden of maintenance (which could be outsourced) and disposal.
2. Finance Lease
- Description: You lease the vehicle and make payments over an agreed period. At the end of the lease, you may have the option to buy the vehicle.
- Pros: Lower initial costs, monthly payments spread out, and lease payments are tax-deductible against Corporation tax.
- Cons: Maintenance and insurance are typically your responsibility, and you don't own the vehicle until the end of the lease.
3. Operating Lease (Business Contract Hire)
- Description: You lease the vehicle without the option to buy at the end. The leasing company retains ownership and manages maintenance.
- Pros: Lower monthly payments than a finance lease, minimal upfront costs, predictable budgeting, and no residual value risk.
- Cons: No ownership, long-term contract commitment, and restrictions on mileage and usage.
4. Hire Purchase (HP)
- Description: Similar to finance lease, but the vehicle is owned at the end of the term without any additional purchase fee.
- Pros: Simple ownership transfer, potential tax advantages, and payments can be spread out.
- Cons: Typically higher monthly payments than leasing, and you handle all maintenance costs.
5. Sale and Leaseback
- Description: Sell your existing fleet to a leasing company, then lease it back. This unlocks capital tied up in vehicles.
- Pros: Frees up cash, ideal for fleets already owned, and provides predictable costs for fleet operations.
- Cons: Often no ownership options, possible higher long-term costs due to leasing fees, and potential contract limitations.
6. Salary Sacrifice
- Description: Employees opt to receive a company vehicle in exchange for a reduction in their pre-tax salary. This model is tax-efficient in the UK.
- Pros: Tax savings for employees and cost-effective for employers; also promotes employee retention with attractive perks.
- Cons: Limited to certain vehicle types in some regions, often focused on lower-emission vehicles, and may require additional admin.
Key Takeaways
- Outright Purchase: High control and high upfront costs.
- Finance Lease: Low upfront, with option to own, but you cover maintenance.
- Operating Lease: Low maintenance hassle, predictable costs, but no ownership.
- Hire Purchase: Ownership at end without additional fees, but higher monthly payments.
- Sale and Leaseback: Great for cash flow but lacks ownership.
- Salary Sacrifice: Tax benefits and employee-friendly but limited to specific markets and vehicles.
Each model fits different priorities, like capital flexibility, vehicle control, tax strategy, and cash flow and LetsTalkFleet have financial models which factor in all these variables bespoke for your business' unique requirements.
LetsTalkFleet can provide independent impartial advice on the most efficient Fleet Products for your business Cash versus Company Car so please get in touch with any specific enquiries you have, we are available on 0330 056 3335 or via email contact@letstalkfleet.co.uk .