📍 C ar
How do you acquire a vehicle for your business: buy or lease? Which is the most cost-effective option?
Choosing the purchase method
Once you've chosen your car, the big question concerns the type of finance: purchase or lease. Note that the method of purchase or financing has no impact on the deductibility of expenses. The choice is primarily a financial one, not a tax one. Here are the main reasons why.
1️⃣ Purchase
👉🏻 We find buying with equity and buying with financing.
Buying is ideal in these situations:
If you have a long-term vision (over 5 years) with your car. This reasoning is all the more valid as electric vehicles have longer-lasting engines (virtually no maintenance required on engines, whereas combustion engines break down after a certain mileage).
If you have sufficient cash flow each month. Even if you take out a bank loan, you will still be paying 100% of the purchase price spread over a maximum period of 60 months.
If you drive more than 20,000 kilometres a year. Lease contracts often limit mileage to 15,000 or 20,000 kilometres.
If you want to buy a second-hand car. In this case, there are some bargains to be had, but leasing companies (which offer rental) are not very keen. From then on, it will generally be a purchase.
2️⃣ Renting
👉🏻 These include renting, leasing and long-term hire.
Renting is ideal for :
Reducing short-term cash outflows. You pay a monthly instalment. This amount is a rent calculated on the value of the vehicle minus the purchase option. If the purchase option is 20%, you pay only 80% of the car during the term of the contract (usually 60 months).
Less hassle. With leasing packages, you can include services such as insurance, tyres and maintenance. You'll avoid any nasty surprises.
Make a capital gain by exercising (buying) the purchase option at the end of the contract (because the option value is usually lower than the market value). Note that if the option is exercised by you, your spouse or your children, you will be taxed on a benefit in kind.
Summary
1️⃣ Purchase | 2️⃣ Leasing | |
Deductible | Every month viadepreciation (1 purchase invoice at the beginning) | Every month via 1 invoice, except for leasing (which follows purchase) |
Recoverable VAT | On the purchase price. VAT must, however, be paid in full at the time of purchase, after which only part is reclaimed. | On each monthly lease payment, including interest |
Includes services (insurance, maintenance, tyres, road tax, etc.) | - | Optional |
Ideal for | ✅ Long-term view ✅ Second-hand car ✅ High mileage ✅ Free cash flow | ✅ Less cash to get out ✅ Less hassle ✅ Private takeover |
Financially | Least expensive overall | Least expensive in the short term |
Advantage | Overall cost | Flexibility |
💡 BILLY advice
Renting is the choice most often recommended by our accountancy advisers. This is because you save on the monthly repayments over the five years of the contract. At the end, you can exercise the purchase option, and thus become the owner of the car. In a way, you have the best of both worlds, while retaining the opportunity to change cars without hassle at the end of the contract. So it's a very good compromise.
Leasing is the ideal option in the following situations:
Changing your car every 5 years
Doubts about the value of your car in 5 years' time ("I don't want to take any risks")
Benefit from a more upmarket vehicle for a lower monthly payment than if you were to buy.
On the other hand,buying has the disadvantage of reducing your borrowing capacity, because either you have credit or you have less cash. If you are planning to buy a property, for example, this could limit your borrowing capacity. This option is worth considering if you're not waiting to drive around in the latest model of car and all its new features, and you don't want to change every 5 years at all costs, because the overall cost will remain lower.
Finally, leasing is a complex hybrid solution. From an accounting point of view, you are the owner - it's like a purchase. From a legal point of view, you are not the owner.
More details on leasing
When you opt to lease a car, you need to distinguish between the three types of lease financing, as set out in the table below.
Renting | Leasing | Long-term leasing | |
Accounting principle | Lease invoice | Investment without ownership, with depreciation | Lease invoice |
Purchase option at end | >= 16% | <16% | No purchase option |
Choice | The right compromise | The most complex | The most flexible |
💡 Don't confuse renting with leasing (dealers often mix up the terms).
Recognising them is simple: in both cases, you have a purchase option at the end of the period (usually 5 years) :
If the option is less than 16% of the value of the car: leasing
If the option is 16% or more: renting
We could say that leasing is a hybrid solution between financing (your accounts hold the vehicle as a fixed asset in their accounts) and renting (you receive a rental invoice each month with VAT applied and you have a purchase option at the end of the contract).
Distinction between financial leasing 💰 and operational leasing 🛞
When leasing or renting, you can opt for what is known as an "operational" (and not a "financial") lease. This means that the lease also includes services linked to the vehicle: insurance, maintenance, tyre changes, etc. This is known as operational renting or operational leasing.
💡 Bearing in mind car taxation and the rapid development of the electric vehicle market, we recommend the flexibility of renting. With a purchase option inflated to 20%.