More people than ever before are turning their hand to running their own business and being their own boss. There are over 4m small businesses helping power the economy. So now you need a car for your business. What are the options?

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First steps: use your existing car

New businesses need to be very careful to keep cash within the business.

So the first option is to use the car you own. Business mileage can be claimed at 45p per mile up to 10,000 miles per annum (after that the rate drops to 25p per mile). And it’s tax free. You must of course ensure the car is legal and properly maintained – there are issues of duty of care to consider – and that the car is correctly insured for business use.

However, if you’ve left a job that came with a company car, you will need a replacement – or maybe your current car is not up to the job of high business mileage. So what then?

Daily rental

This has the advantage of pay on use – so you are not funding any standing costs.

Create a business account with your local daily car rental firm and then rent a car when you need.

It keeps costs down without tying up lots of cash, the cars are ‘no capital cost, insured for business, a business expense’,  properly insured for business, smart and being new, unlikely to break down.

The car rental can be treated as a business expense.

Using short-term hire

There are a number of hire companies now offering competitive flexible arrangements with up to 3,000 miles a month without penalty. The terms covered are from three to six months.

For a new start up this is a simple way to fund a car as the business grows and has the flexibility to change as the business strategy is revised in accordance with growth.

For sole traders, the business portion of the rental can be claimed as a business expense.

For incorporated companies, the rentals will be expensible but the car will be liable to company car tax.

Business contract hire

Contract hire is a way to fund a car over a period of time and miles – for most small businesses, that’s three years and 30,000 miles.

You don’t own the car – but hand it back at the end of the lease, subject to fair wear and tear conditions.

Generally speaking contract hire is for more established businesses – you need a trading record to get the lease underwritten.

But Paul Bulloch, the managing director of leasing broker firm Concept Vehicle Leasing, says some firms will offer new businesses contract hire.

“A longer term contract hire facility is available to new business start-ups through some mainstream providers and smaller funders. However, different terms and additional security are normally required. This could typically be an increased initial rental – such as six or nine payments up front – or the provision of an indemnity from a director.”

Contract hire provides access to new cars at fleet discounted leasing rates. But the drawback is a lack of flexibility: if you decide to cancel, the charges are punitive.

How about car purchase?

It may be, of course, that your business is flush with cash, possibly thanks to a generous pay-off, and a car purchase is in order.

Alan Rhodes, the sales and marketing director of Scania Financial Services, says: “I would suggest that a new business considers straightforward purchase (perhaps using a loan or hire purchase facility).

“This gives the new business flexibility, the car can be sold if needed, and an asset for the balance sheet – something that most businesses need when starting out.”

HP generally involves higher monthly payments than contract hire, so this can impact on cash flow. But finance payments can be offset against profits for sole traders; individuals can use the 45p per mile tax free mileage rates to reimburse business mileage. 

Fleet Alliance and company car finance

Fleet Alliance is a leading UK fleet management provider offering contract hire, leasing and a complete range of fleet solutions products, from personal contract hire through to small fleet contract hire.

Why are we associated with this factsheet?

Because we’re a market leader in the provision of car finance to the SME market as well as larger corporate fleets.

We currently manage over 10,500 vehicles with a combined value in excess of £200m.

We deliver a complete fleet solution via our market leading Fleet 360 model which provides the best combination of advice, products, competitive pricing and outstanding service.

So whether you’re interested in a personal lease or a contract hire, we can find a competitively priced car for you.

You can look us up at our website where you’ll also find industry news, white papers to help you make more informed decisions and, if you’re interested, our blog which takes a light hearted look at serious fleet issues.

While you’re there, why not try out company car tax calculator.

So if you’re looking for finance or fleet advice, call us on 0845 601 8407.