Is it best to buy or lease my taxi fleet as a new business?

Are you thinking about getting into the taxi industry? It’s potentially a very lucrative sector to operate in – according to research by IBISWorld, the UK industry is predicted to be worth around £9.7bn by the end of 2019.

 

To operate a successful taxi fleet nowadays, there are a number of decisions you need to make while setting up your business and, arguably, the most important of these decisions is whether to buy your vehicles or lease them.

 

As a taxi business, your vehicles will be putting in some serious miles every year, so it’s crucial you take the route that helps keep your fleet on the road and your drivers as busy as possible.

 

What is leasing?

 

While most of us know what buying a vehicle outright involves, leasing is less familiar territory to some, despite its growth in the UK.

 

The latest figures from the BVRLA show that the vehicle leasing market grew by another 10% in 2018, following 9% growth in 2017.

 

The body said that the growth is the result of people “[moving] away from vehicle ownership to ‘usership’”.

 

For businesses, leasing can represent a more cost-effective alternative to buying outright. When starting a new taxi business, you might not have the funds to outlay on an entire fleet up front.

 

When leasing a vehicle, instead of paying the market value for it, you pay fixed monthly payments for the length of the agreement with the finance company.

 

At the end of the agreement, you can either extend the lease, start a new agreement or simply give the vehicle back.

 

Can you write off lease payments as a business owner?

 

Another advantage of leasing is that, as a business, you can claim back part, or all, of the VAT.

 

As the car isn’t owned by the company, it doesn’t appear on its balance sheet.

 

This means the leasing payments are treated as an expense, the majority of which can usually be deducted from the company’s profit.

 

Meanwhile, under the lease rental restriction – brought in to incentivise businesses to adopt cleaner vehicles – new cars with emissions of 110g/km or less are eligible for 100% of their lease payments to be offset against corporation tax. Learn more about what are best cars to buy for your taxi fleet to decide which vehicle is best suited to have 100% of the lease offset as corporation tax. 

 

For those with emissions of 111g/km or more, only 85% is claimable.

 

What are the advantages and disadvantages of car leasing?

 

Advantages	Disadvantages
When leasing a vehicle or fleet of vehicles, you might be required to put down an initial payment, or deposit, which will lower your monthly payments, compared to providing no down payment at all.	Leasing vehicles in your fleet means you don't own the car. Therefore, you can't name them as assets if you need to secure finance
In fact, it is now possible to lease a vehicle without an initial payment/deposit, which can be appealing for businesses who have a number of expensive start-up costs to consider	The finance company will set up your monthly payments based on your annual mileage
While it’s possible to lease used cars, typically people opt for brand-new vehicles. If you lease a brand-new car, you’ll be getting all that comes with it: the latest safety technology, manufacturer’s warranty cover, and peace of mind.	Difficult to estimate how many miles your fleet will do in a year, especially if a newly formed company
For further peace of mind, you could ask to have a service and maintenance provision added to your agreement.	Depending on the size of your taxi fleet, the monthly payments for your vehicles can rack up, putting pressure on cash flow

  

Which is better, buying or leasing a car?

 

It all depends on the individual circumstances of your taxi business.

 

If you’ve got the capital to buy a fleet of cabs outright, it’s worth your time checking out the market to see what you can get for your money.

 

If you delve into the used-car market, you might be able to pick up a bargain or two, having negotiated the price of the vehicles down.

 

But if you decide you want to buy brand new, your new assets will be losing money the minute you drive them away from the forecourt.

 

In fact, a new car will have lost 40% of its value within 12 months of owning it, according to the AA.

 

Owning the asset outright does have its value, though, when it comes to taking out finance and repaying any outstanding debts.

 

But be careful of borrowing money to buy your vehicles, as this can tie up lines of credit that might be needed elsewhere in your business.

 

Taxi fleet insurance

 

Once you’ve decided whether to buy or lease your company vehicles, you’ll need to think about taking out some taxi fleet insurance.

 

It’s important that you find the right policy to match the volume and requirements of the vehicles which are part of your fleet.

 

Taxi fleet insurance is available to fleets of three or more vehicles.

 

It doesn’t matter if you have a fleet of black cabs, minicabs, minibuses, or a mix of vehicles – The Taxi Insurer can help you find a policy that matches all your needs and covers all of the vehicles in your fleet, for a price that fits.

 

Taxi fleet insurance might also include driver cover, depending on the age and experience of the driver.

 

With only one policy to remember to renew each year, you can put all your effort into making your taxi business a success. Get a no-obligation taxi fleet insurance quote today.