According to reports, within 2001 and 2017 self-employment in the UK SME sector grew from 3.3 million self-employed to 4.8 million, with over 3.4 million people dependent upon their van for work. With the substantial growth in number of those who depend on their van for work, so have the number of vans changing hands grown with just under a million used vans changing hands each year.
Just like buying any new vehicle; buying a van – particularly where your livelihood depends on it – is a very crucial decision. Therefore, there are so many things you will need to consider and the wrong move can set your business back, while the right choice will provide your business with a great platform to move forward.
One of the very first questions you have to ask yourself is whether or not you want a brand-new van or whether a used van is sufficient for your business needs. Have it in mind that a new van comes with a host of advantages such as higher mechanical reliability, the latest technology and typically a longer warranty should anything go wrong with the vehicle.
However, a brand-new van will cost considerably more than a used van and can depreciate rapidly in value from the moment you drive it off the forecourt so if you look to sell your van after a few years – you are likely to rack up quite a loss. Meanwhile, buying a used van requires a great amount of attention to ensure you are getting a healthy, fully functional vehicle.
It is always advisable that you test-drive a used van before you buy it and be careful not to acquire a second or third hand van – particularly one with high mileage – especially since they come with higher maintenance costs. But you can expect to pay far less for a used van which can suit a new business trying to save on outlay.
But irrespective of whether you buy a new or used van, always make sure to cover it with the appropriate business insurance. There are also other things to take into consideration when thinking about buying a van whilst you are self-employed.
One option is to buy a van outright. This can be a good option, if you have the capital to do so, as you’ll have no additional outgoing payments after the purchase. With no extra payments needed, you may find it easier to budget over a longer period of time. Or, you could use a bank loan to buy a van. While this will accumulate interest over time, those interest charges can be reclaimed against tax.
Another option is to lease a van and this gives you the opportunity to own the van at the end of your leasing period. One option is hire purchase, where you pay an initial deposit followed by monthly installments. At the end of the agreement, you own the van. Another option is balloon hire purchase, which may suit new businesses. Here, you pay smaller monthly payments and then a larger ‘balloon’ payment at the end of the agreement, after which you own the vehicle.
What is the Best Way to Buy a Van in UK as a Self Employed Entrepreneur?
Businesses and the self-employed are expected to be particularly mindful of their costs and a van – or a small fleet of them – is a big investment. SMEs don’t have the buying power of large companies, while sole traders have to pay for their vehicles from their own pockets, so it is imperative to find the right way to fund and buy your van. Here are the two best options to consider and their various advantages and disadvantages.
Buying a Van with Cash, PCP or Finance
Buying a van makes it yours. This brings an array of benefits as explained below, but you’ll either need to buy it outright or fund its purchase through a loan.
Note that one of the best things about buying a van is that you own it outright and can use it as you please. It becomes a business asset, there are no mileage constraints or any other restrictions that come with leasing a vehicle and you can sell it anytime you decide.
Also, if you buy it with a finance package such as a PCP deal then there may be other restrictions for the duration of that contract, but you will still become the owner at the end of it (unless you trade it in and sign up to a new deal). You could also finance it via a bank loan, which wouldn’t involve any restrictions on the vehicle itself.
In the UK, buying a van outright can make better financial sense than leasing in other circumstances. For example, if you keep it for the same period of time as a lease contract then you’ll pay less overall, because you aren’t paying a monthly lease rate, which includes a layer of profit for the finance company.
That still happens if you buy with finance, but you’ll own the van at the end of the contract, whereas this won’t be the case with leasing. Also there are also some tax advantages: if the van is used for business purposes then you can offset the capital allowance against your tax bill. In the UK, there is always the option of a second-hand van, too.
This can be a much more affordable way into ownership, while franchised dealers sell relatively young models under used approved schemes, which include the likes of warranties and vehicle history checks for extra peace of mind. It is more or less possible to negotiate the price when you are buying either used or new from a dealer, too.
One of the biggest disadvantages of buying a van outright is the high up-front cost. You can indeed reduce this by purchasing it with a form of finance such as PCP but you are almost certainly looking at a higher deposit than you would with leasing.
Also note that you don’t get the benefit of fixed costs. Coupled with the up-front purchase price, you have to cover your own insurance and maintenance, so the expenses are enormous to predict. You’ll also have to soak up the significant cost of depreciation too, and you’ll be responsible for selling the van when you are finished with it – you can’t just hand it back to a finance company.
Leasing a Van
Leasing is different to buying, as you won’t technically own the van. You’ll just be renting its services – typically for a monthly fee.
Note that big businesses prefer to lease their vans especially since it is simple and everything is bundled into a fixed monthly fee – and the same applies to SMEs and self-employed traders. You will more or less have to pay a modest deposit, but you don’t have to make a large one-off payment as you would when you buy a vehicle, so the costs are much easier to swallow.
Most of lease contracts include the likes of insurance and a maintenance package, so you can bundle the cost of just about everything except fuel into a single monthly payment, which is really easier. In addition, if your business is VAT registered, then you can claim back some or all of the VAT you pay on the monthly lease fee as long as the van is used for business purposes – however, some van lease deals are advertised without VAT, so it is necessary to understand that beforehand.
Additionally, at the end of the lease, you have the option to simply return the van or you can keep the contract going and get another one from the leasing company, which is an ideal option if you want a new or upgraded model every few years.
Have it in mind that most lease contracts come with stipulations about the amount of mileage you can cover. So it is very important to make this very clear at the beginning of the agreement – if it isn’t then question it or walk away – and you will be liable for additional fees if you exceed the agreed mileage limit.
Also note that you don’t own the van when you lease it, instead it belongs to the finance company, and there may be other conditions in the contract about exactly what you can and can’t do with it. And you might not be able to modify the van, for instance, which could be a problem if you want to fit specialist equipment, such as racking.
You will be expected to keep the van for the duration of the lease, so if your circumstances change then you will either have to keep hold of it until the contact is over or pay an exit fee. You will also pay more in the long run if you lease a van than if you simply bought it.
All told, there is a lot to consider when buying a new or used van as a Self Employed Entrepreneur in the UK. Ensuring you are thorough in your checks and fully measuring your business’ needs from your van before you buy is imperative.
Nonetheless, buying a van tends to bring a bit more freedom, whilst leasing, a little more security. Neither option is necessarily better than the other – what fits best will depend upon your business. Take your time to look at your balance sheet, weigh up the pros and cons, and pick your option carefully.