We’re back with a new episode of ‘Ask the Accountants’!
This week, MD Jenny is taking a look at the options available if you’re buying a van for the business – thinking about it? This one is for you!
Not able to watch the video? Scroll down to find a full transcript.
“Hello and welcome to the latest episode of Ask the Accountants!
I’m Jenny, one of the directors here at Bickerstaffs, and today’s question is from Laura in Penzance, who wants to know how she can finance a new van for her business?
Well, first it’s important to take a look at your books Laura, and work out what you can afford for finance payments each month, and how much you could put down as a deposit.
Then, you’ve got four main options – a hire purchase agreement, a contract purchase, lease the van or use a business loan. Let’s look at each of these in a bit more detail.
Ok, first up is a hire purchase agreement. Probably the most common way to finance a van through a business, they’re really flexible so you and the dealer can work out an agreement that suits you both. You will need to put down a reasonable deposit though.
HP agreements tend to last around 3 years, at which point you’ll own the van outright, so if you fancy something newer, you can either sell it privately or do a part-exchange.
Next, we’ve got a contract purchase. Now these are similar to hire purchase agreements, but a big chunk of the van’s value is deferred to the last payment, called a ‘balloon payment’.
The balloon payment is actually optional, so when you reach the end of the contract you can either pay it so you’ll own the van outright, or hand the keys back to the dealer and walk away.
Contract purchase is really helpful if you want to keep the monthly repayments as low as possible, but don’t forget, there is the possibility that you won’t actually own the van at the end of the contract, if you can’t make that final payment.
If you want use of a van, but are not too concerned about owning it, leasing could be the best option. Sometimes called ‘contract hire’, you’ll agree a monthly rent amount and contract term with the dealer, which is usually somewhere between 24 and 60 months.
And, although you won’t own the van at the end, you will be able to class your monthly van rental payment as a tax deductible expense, which is always helpful!
Last up, we’ve got a business loan. If you would prefer to pay for your new van upfront, and own it outright, a business loan could be the way to go.
You’ll want to make sure you can get a good interest rate, so your monthly loan repayments are affordable for the business, but should you go bankrupt, or the business is liquidated, the van could then be sold to offset any debts that are outstanding.
So there you have it, Laura and anyone else out there thinking about getting a new van for your business, four great options to choose from!
Getting a van, rather than a car, is a great idea as it can be really tax effective when it comes to your VAT and corporation tax. If you’d like to find out more about this, or to work out the best finance option for your business, why not give us a call? Until next time!”