Should you buy or lease a van for your small business?

Updated for 2018

A van is an important investment, so here we look at which option might best suit you.

Searching for your first van can feel like an assault on the senses. With so many sellers fighting for attention it can be tricky to cut through the upsell, with all the offers and payment plans proving a lot to get to grips with. Broadly speaking you’ve got two options: buying or leasing. So how do they differ, and which will best fit your business?

First, let’s define the differences.

Buying a van for business use

Buying a van makes it yours. This brings an array of benefits as we’ll soon explain, but you’ll either need to buy it outright or fund its purchase through a loan.

Leasing a van for business use

Leasing is different to buying, as you won’t technically own the van. You’ll just be renting its services - typically for a monthly fee.

Now, as mentioned both buying and leasing bring their own benefits and drawbacks. So, what are they exactly and which of the two offers the best value?

Why buy a van?

Buying a van tends to bring a bit more freedom as it’s your own property. You’ll be free of strict lease contract limits and you can do what you like aesthetically, so if you fancy scrawling your business name and number on the side, go ahead – nobody can stop you!

Tax advantages of buying a van

You can claim the cost of buying a van as expenses against your income tax bill, but how you do so depends on how you pay tax. If you use traditional accounting you can claim the van as a capital allowance.

For the most part this is the same if you use cash basis accounting, unless you’re using simplified expenses.

And there’s also always the option to sell your van on should you need a cash injection.

What’s the best way to buy a van if you’re self-employed?

There are a few things to take into consideration when thinking about buying a van while you’re self-employed.

One option is to buy a van outright. This can be a good option, if you have the capital to do so, as you’ll have no additional outgoing payments after the purchase. With no extra payments needed, you may find it easier to budget over a longer period of time.

Alternatively, you could use a bank loan to buy a van. While this will accumulate interest over time, those interest charges can be reclaimed against tax.

Another thing to decide is whether you buy second-hand or buy new. Second-hand vans are often a good choice for businesses starting out, as they’re cheaper than their brand-new counterparts. As long as you put in the research, you should be able to find a reliable used van.

Oh the other hand, buying new gives you the obvious benefits of a pristine vehicle. However, you will still need to shop around and do your research to find the right van at the best price.

Keep in mind that there are some leasing options that give you the opportunity to own the van at the end of your leasing period. One option is hire purchase, where you pay an initial deposit followed by monthly instalments. At the end of the agreement, you own the van.

Another option is balloon hire purchase, which may suit new businesses. Here, you pay smaller monthly payments and then a larger ‘balloon’ payment at the end of the agreement, after which you own the vehicle.

Why lease a van?

Leasing doesn’t require a big chunk of cash – either from your own coffers or a loan – as the cost is spread out over the fixed term of a contract. You’ll just need to put up a deposit, which usually isn’t too big.

Maintenance costs tend to be covered by the leasing company so you won’t have that worry either, and should you grow attached to the van there might be an option to buy it, as explained above. You’ll just need to commit to a ‘lease purchase’ style agreement.

Tax advantages of leasing a van

One of the tax advantages to leasing a van can include claiming up to 100% VAT back on the monthly payments, if your business is a VAT-registered business. This is provided that the van is only for business use.

And like buying a van, you can claim the cost of van rental as an expense when it comes to filing your tax return. Your rental payments can be a tax-deductible expense.

If you want to know more about allowable van, car and travel expenses, check out Gov.uk’s guide to travel expenses for the self employed.

Finding the best option for your business

Now, before committing to buying or leasing it’s important to bear in mind the drawbacks. By buying you’ll be left solely responsible for:

  • The van’s upkeep - including breakdowns, repairs and general wear and tear
  • The legal logistics - your road tax and insurance responsibilities (although we can help you get a good deal there)

The costs of breakdowns and repairs can be crippling as a hard up start-up, but if you’re a little more established and can cope with these payments then buying could make more sense. Leasing certainly isn’t perfect for all, as you might face things like:

  • Mileage restrictions and hefty penalties should they be exceeded
  • Long-term contracts that may not fit with your changing circumstances
  • An overall payment that ultimately outweighs the cost of buying outright

So, buying tends to bring a bit more freedom whilst leasing, a little more security. Neither option is necessarily better than the other – what fits best will depend upon your business. Take a long look at your balance sheet, weigh up the pros and cons, and pick your option carefully.

Did you buy or lease your business van? Tell us which worked best for you in the comments!

Looking for self-employed insurance?

With Simply Business you can build a single self employed insurance policy combining the covers that are relevant to you. Whether it’s public liability insurance, professional indemnity or whatever else you need, we’ll run you a quick quote online, and let you decide if we’re a good fit.

Start your quote

Footer