New methods of sourcing vehicles, coupled with changes in technology and legislation around lower-emission options, mean business owners have plenty of choice when it comes to getting around. David Adams explores the options.
Whatever your vehicle requirements, it’s vital to choose the right models and the best way of procuring them. The traditional method – buying new or used vehicles outright or via a finance deal – may be the best for some, but a growing number of businesses now lease new vehicles.
They may use a personal contract purchase (PCP) arrangement, which can incorporate maintenance, insurance and other extras. At the end of the contract, the business can buy the vehicle with a final payment. Although many return the vehicle, PCP means they appear on balance sheets as depreciating assets, allowing the business to claim capital allowances, with VAT deductible on rental agreements for vehicles used only for business.
Businesses using another popular option, a contract hire agreement, pay a fixed monthly sum to lease vehicles over a fixed term, but the vehicle is always returned at the end.
Although the contract may include maintenance, businesses can claim 100 per cent of VAT paid on maintenance costs and on leasing fees for vehicles only used for business.
Andy Aird, Sales and Marketing Director at Concierge Vehicle Solutions and FSB West of Scotland Area Leader, stresses the importance of checking mileage constraints in contracts. “In most cases, a mileage penalty at the end isn’t so bad if you budget for it, so estimate your mileage low to keep monthly payments down,” he says.
He also warns users to beware of end-of-contract repair charges. He suggests they get a trusted mechanic to take a look at the vehicle before it is returned “so there’s less opportunity for the leasing company to extract damage repair costs”.
Another option is to use a long-term rental agreement. Martin Wilson, Managing Director of rental company Thrifty, says an agreement might allow a business to drive the vehicle up to 2,000 miles per month and often includes maintenance costs and the ability to swap the vehicle if needs change.
“If you compared price against a standard lease with a similar mileage range, incorporating service and maintenance, it’s a similar figure,” says Mr Wilson. “But the key point is the flexibility to manage costs.”
This can also be a good alternative to employees using their own vehicles, says Sam Sterry, SME Sales Director at Europcar Mobility Group UK. “When employees drive their own vehicles, there is no easy way to collect data about their driving behaviour, leaving employers unclear whether a vehicle has a valid MOT, tax and insurance or when it was last serviced,” she says. “There’s also the administration and expenses associated with claiming fuel costs. A hire vehicle is an easier way to manage and monitor employees’ travel activity and costs.”
In future, diesel and petrol vehicles may be subject to financial penalties if they enter low emission zones. In London there are already charges for a range of trucks, vans and pickup vehicles; stricter rules will apply from October 2020.
“Over the next three to five years, values of diesel and petrol cars are going to suffer,” says Mr Aird. “The days of being able to buy outright and manage depreciation are coming to an end.”
Financial incentives for electric vehicles include the fact that charging tends to be cheaper than petrol or diesel. They are also exempt from vehicle tax if bought for less than £40,000 or registered before March 2017. In addition, from April 2020, company
car drivers using purely electrical cars will pay no benefit-in-kind tax; then 1 per cent for this tax from April 2021 and 2 per cent from April 2022.
Electric vehicles’ speed, battery charge range and battery life are improving. The big concern for many businesses is the extent of the charging infrastructure.
Today, there are around 246,000 electric cars and 8,500 electric vans on UK roads, using about 28,000 charge points, according to Society of Motor Manufacturers and Traders and UK Government figures. The Government suggests there may be 3 million electric vehicles in use in the UK by 2025. This will still be a small proportion of the total number of vehicles (currently about 38 million), but the charging infrastructure will need to be extended dramatically.
The Government’s target is for there to be 3 million charge points by 2025.
Businesses can use the Government’s Workplace Charging Scheme to apply for grants to reduce the cost of installing charge points on premises. Over time, more homes will have charge points installed, too. Vehicles can be charged via an ordinary socket, but this can take a long time and may be impractical.
Using public charge points can be irritatingly complex: there are multiple types, costs can be unpredictable and it may be necessary to carry adaptors.
FSB is among a number of organisations encouraging standardisation.
In future, businesses may use hydrogen fuel cell-powered vehicles, which combine hydrogen and oxygen to generate electricity. It only takes a few minutes to refuel a cell with enough hydrogen to run a vehicle for several hundred miles. At present there are
few hydrogen vehicles available, they are very expensive and the refuelling infrastructure is limited. Nevertheless, this type of fuel will surely be used more widely in future: it is expected to be useful for larger vehicles such as trucks.
Faced with a range of choices, what do small businesses actually do? Emma Woods is owner and manager of Duncombe Sawmill, based in Helmsley, North Yorkshire. The business employs 10 people, and builds and sells products such as fencing, gates, timber buildings and garden furniture to retail and trade customers in the UK and overseas.
Long-distance deliveries are outsourced to a local haulier firm. Until 2018, the sawmill used its own truck to deliver large items to local customers, but in 2018 this was also outsourced.
“We had eight-week checks on the lorry,” she recalls. “With that and the additional courses that anyone who drove the vehicle had to do, it became too costly.”
The sawmill still has a small pick-up and a transit van. Both are diesel, are owned outright and were bought second-hand. Ms Woods says she might investigate whether it would be possible to use electric vehicles, “but we’re a rural business and I don’t think there are enough charge points in our area”.
John Savage, Managing Director of the Flame Heating Group, based in Boldon, near Sunderland, has similar reservations. Flame is a fast-growing heating and plumbing equipment merchant with more than 70 staff, a distribution centre and 12 branches across northern England and Scotland. It was named scale-up business of the year in the FSB’s 2019 Celebrating Small Businesses Awards.
The business has 14 vans and 10 company cars. In the past it has leased vans, but this proved problematic because the heavy goods it carries sometimes damaged the vehicles; it now uses hire purchase. At present, many of its vehicles are diesel. “I’m keen to look at electric,” says Mr Savage. “I don’t think there’s a big enough infrastructure there for it yet, but I know changes in legislation coming soon mean that may change.”
Mr Aird has one last piece of advice, particularly for someone who is going to be driving a lot. “Take a test drive, for at least an hour,” he says. “I know too many people who don’t like their vehicle.”
Mobilleo, provided by Fleetondemand, is a business Mobility as a Service (MaaS) app that analyses transport options available for a given journey.
Then, via links to other service providers, it helps plan and book the different elements of the journey, including car rental, taxis, flights and other public transport. The platform shows users how long each option will take, along with cost and projected CO2 emissions.
Businesses can set budgets per month or per transport type for individuals.
“The main benefit is time-saving,” says Matt Terry, Head of Business MaaS at Fleetondemand. “We bring many different suppliers into the system, so pricing can be competitive. We’re looking at bringing in parking – often an after-thought for businesses, but spend can be quite high.”
A growing number of businesses, particularly those in congested city centres, now use bicycles to meet logistical requirements. “This isn’t necessarily about the environment, but about economic reality if you need to do deliveries in a built-up area with parking and congestion problems,” says Ivor Chomacki, Development Director for the European Cycle Logistics Federation.
The bikes can also prove useful outside city centres: Mr Chomacki cites Hereford Pedicabs and Cargo, which uses cargo bikes to provide logistics and waste recycling services to businesses and consumers in the Hereford area.
Grants to part-fund the purchase of cargo bikes are available from the Department for Transport.