The advantages and disadvantages of purchasing a company car

If your company has the money available then you have the option to purchase a company car. The advantage of this is that the vehicle then is owned legally by the company and becomes a company asset (even though this will depreciate quite rapidly if you buy a new car). If there isn’t the cash flow to support a direct purchase then another purchase option is hire purchase. You will need a deposit and payments are then made over a set period. Under this scheme you do not own the vehicle until the final payment is made. Advantages of both these options are that bank interest and capital allowances can be set against any taxable profits. As vehicles purchased new are going to have high levels of depreciation in a relatively short time business with limited resources would probably benefit for purchasing a low-mileage second hand vehicle as not only will there be savings on the purchase prices but also insurance costs will be quite a bit lower. If buying a second-hand vehicle it is important to look at warranty deals as maintenance costs also need considering. Of course, the options between direct purchase and hire purchase may not be as clear cut as you may think at the outset. It may be particularly advantageous to pay upfront and write off the costs of the car in one year if there is a short term increase in turnover, for example a one-off large contract. In this case it may be preferable to look at other financial options such as a short-term business loan or asking shareholders or family members to front a short-term loan.