So, your pharmacy needs a new van for deliveries, but should you lease one or buy one? What’s best for your business? Here’s some advice

When it comes to acquiring a vehicle, the route chosen is a matter of personal preference and the ability to pay. Outright purchase, lease, hire purchase – there is no right answer.

Buying

There are some who like to own their assets, rather than pay to use them. They, however, will be responsible for maintenance, repair of any damage and will take the hit on the depreciation of the vehicle.

Outright purchase means no contractual restrictions on what the owner can do with the van. The owner is also at liberty to sell the vehicle, as there is no contract or payments.

Of course, there’s a question over the cost of cash used to buy the van. Even though interest rates are low, it’s possible to get a better return on the cash through other investments and savings accounts compared to buying a depreciating asset.

Leasing

Leasing is a contract to use rather than own a vehicle in exchange for a regular fee which means that a van can be acquired without the need to tie up working cash. The cost of usage is spread over the term of the agreement.

Most leases include the cost of maintenance and servicing. As with anything, leasing isn’t straightforward because some leases (termed ‘lease purchase’) can give the user the option to buy the vehicle at the end of the agreement.

There are two options here. The first is hire purchase. Here the contract requires a deposit followed by monthly payments. At the end of the agreement, the ownership of the van transfers to the user. Overall the cost will be higher than for a pure ‘use-only’ lease. 

Alternatively, it’s possible to sign up to a balloon hire purchase agreement. Smaller monthly payments are made and at the end of the agreement the user either hands back the keys or makes a larger ‘balloon’ payment to take ownership of the vehicle.

Tax considerations

The cost of buying a van can be set against the business tax bill. There are different rules for doing this depending on the accounting process used by the business and the VAT on the purchase can be reclaimed if the van is used solely for business purposes.

With leasing, as with outright purchase, the monthly payments can be set off against tax bills. In contrast when leasing a van, assuming the business is VAT registered, all the VAT charged can be reclaimed on the monthly fee, if the van is for purely business use. 

Whichever route you take, good advice from an accountant is key to help navigate the tax rules.