The biggest advantage of Outright Purchase of a fleet or vehicle is the flexibility it brings. If circumstances change, it's easier to move vehicles around, or buy and sell vehicles at any time.
What do we mean by Outright Purchase?
When we talk about Outright Purchase, we mean that a business has purchased a vehicle direct from a supplier, using their own funds or external funds they have organised e.g. Hire Purchase. Either way, the supplier is paid in full for the vehicle by the business.
The vehicle will be registered in the businesses name and as far as DVLA and HMRC are concerned, the business is the owner and registered keeper of the vehicle.
The primary benefits of Outright Purchase
There are no mileage restrictions
Because you own your own vehicles, there are no restrictions on mileage so you don’t need to worry what the mileage on each vehicle will be when you purchase it. Also, because there are no contracts with external parties, there are no penalties for exceeding mileage allowances. So, when you purchase a vehicle on day one, it makes no difference what the mileage will be – the price is the same.
It's easier to release capital at any time
As circumstances change, it’s much easier to mould the fleet to meet new business challenges when your vehicles are controlled by you. If you need to shed some vehicles and release some funds, it’s a painless exercise to dispose of vehicles without having to worry about early termination penalties from a leasing provider.
There are no contractual obligations
As you do not have to comply with contract conditions and rules set down by a leasing provider, it’s entirely up to you to decide how you want to run the fleet. This means that you have complete control over such things as motor insurance, tyre policy, servicing arrangements, acquisition, disposal and end of life vehicle condition.
You own the vehicle outright
Sometimes the culture of the business simply demands that the vehicle fleet is fully owned. If access to cash and credit lines isn’t a problem, then Outright Purchase is the more flexible option. And if you own your own fleet, then the risks and rewards are entirely yours to control.You enjoy capital allowances on the vehicle
If your business is making money and has taxable profits, then capital allowances provide a way to provide tax relief on purchases. Because you own the vehicle fleet, you can offset the difference between what you paid for each vehicle against what it’s worth. Capital allowances are an invaluable way to reduce your tax burden.
A word about Capital Allowances and VAT
The Capital Allowances you can claim against vehicle purchases is determined by the CO2 emissions for each vehicle. This is consistent with the government’s other policies that are intended to drive down vehicle emissions.
You can claim 100% allowances for vehicles under 95 g/km2, 18% of the cost of the vehicle up to 130 g/km2 and only 8% for vehicles above this level.
When a business buys a car, it can reclaim 100% of the VAT on that purchase. However, if there is any private use of the car, then the business cannot recover any VAT at all.
This restriction will clearly apply to the company car fleet, so it’s something you need to bear in mind. Leasing companies have an exemption from this rule and they are able to reclaim all of the VAT on the purchase of a vehicle.
Outright Purchase is ideal for organisations that want complete control of their vehicle fleet. It is without doubt the most flexible funding choice. As there are no contracts in play, it’s much easier to tinker with the fleet and move vehicles around when you need to.
It can be extremely cost-effective, especially if you are able to use internal funds. The fleet belongs to you and will be shown in the company balance sheet. As a result, you’ll benefit from capital allowances.
However, managing your own vehicles has associated risks - both in terms of cost and resources. As the owner of your vehicles, you have responsibilities and are exposed to the risks of running the fleet. You must also consider recent reductions in capital allowances and the inability to recover VAT (for cars with some private use), which means that Outright Purchase is perhaps not as attractive as it used to be.
If you want to buy in expertise and have someone else run your cars and vans, then have a look at Contract Hire.
On the other hand, if you want to own your fleet and have total control of your vehicles, then Outright Purchase is for you.