Let's examine why some people are skeptical of leasing as a concept in Ireland, and explore the benefits of making a leap of faith into the world of leasing.
Here’s our elevator pitch:
Business car leasing is the best kept secret of vehicle financing. For a manageable fixed cost, you can get your business the brand-new vehicles it needs to thrive. You needn’t worry about the depreciation of your fleet, because you don’t need to remarket it. And because there’s no big up-front payment, you’ll maintain a steady level of capital to invest in other areas of the business. This all adds up to a better way to finance your fleet – and we haven’t even started on the regulatory benefits…
That’s the end of our pitch, and we wouldn’t be surprised if you still have some doubts.
Leasing business fleets is common practice in Germany, France and other parts of continental Europe, but Ireland and many other countries are still playing catch-up. As a result, Irish decision makers are often relatively unfamiliar with leasing, and are unsure whether it’s a sound approach to vehicle financing.
If that sounds like you, this article will get you up to speed. Let’s look at a more detailed business case for business vehicle leasing.
Leasing offers a unique mix of managerial support and control over your fleet
Businesses often worry that leasing means they’ll have limited control over their fleet. As a matter of fact, a good lessor will act mainly as a facilitator of fleet strategy, rather than micro-managing your operations without invitation. For example, we can draw on our exceptional experience to give counsel on damage management, fleet operation, fleet support and everything else that goes into operating at scale.
It’s true that leasing does come with some terms and conditions attached – but these can be as much about your company’s rights as they are about what it is not allowed to do. For example, you’ll often be able to negotiate terms that guarantee your right to have vehicles modified, to travel abroad, and to accumulate more than enough mileage to cover your needs.
Leasing offers plenty of control over your fleet – provided you get your agreement right before you sign.
It can also get you on the right side of Ireland’s road regulations
Wear and tear
Irish businesses can claim an annual wear and tear allowance to the value of 12.5% of a leased vehicle’s cost, which may evenly write off the allowable cost of the vehicle over eight years.
For vehicles suitable for non-business use (i.e. passenger cars), this rate can apply to vehicles costing up to €24,000 – after which point the allowance is capped at 12.5% of that figure. For specialised commercial vehicles such as vans and trucks, the 12.5% rate is applied no matter what the vehicle costs.
Since 1st July 2008, the level of allowance available for a non-specialised passenger vehicle will be determined according to which Vehicle Registration Tax (VRT) band it falls under, which will depend on its CO2 emissions at the time of manufacture. For the purpose of setting wear and tear allowances, the seven VRT bands are divided into three groups:
- Group 1 – categories A, B and C – emissions up to and including 155g/km – €24,000 allowance.
- Group 2 – categories D & E – emissions from 156g/km up to and including 190g/km – €12,000 allowance (or, if lower, 50% of vehicle cost).
- Group 3 – categories F & G – emissions exceeding 190g/km – no wear-and-tear allowance.
Thanks to wear-and-tear allowances, some lessees can ensure a significant proportion of their normal vehicle maintenance costs are treated as tax-deductible trading expenses. To maximise this benefit, make sure your lessor’s range includes a good selection of category A, B and C vehicles.
You can check a vehicle’s VRT band by looking it up on the IBI System (or if you’re leasing from Sixt Leasing, simply contact our support team).
Tax incentives for going green apply to purchased vehicles as well as leased ones – but to a lesser extent. When a company sells on a vehicle it has bought, the proceeds from the sale are deducted from its wear and tear allowance, thus reducing the benefit of selling (which will likely already be blunted by the vehicle’s depreciation).
Further reading: Tax & Duty Manual (Part 11-00-01) – Irish Tax & Customs
In addition to claiming wear and tear allowance, Irish lessees can also claim back VAT on much of their leasing outlay. 100% VAT can be claimed back on the maintenance of leased vehicles, and on the leasing costs of commercial vehicles. Meanwhile, 20% of lease element VAT can be claimed back on passenger cars which are used for business purposes at least 60% of the time for two years or more.
Revenues can be hard to predict; leasing costs are not
Purchasing vehicles may seem an attractive option when business is booming – but some businesses that choose to buy end up wishing they still had that capital to invest elsewhere.
It’s possible to dodge this situation by financing vehicles with a loan – but the long-term costs of this option can be unacceptably high, especially when borrowing capacity is needed to cover other costs.
Leasing, then, could in-fact be the sounder option for financing your business vehicles. Where buying brings a large, one-off outlay, leasing offers stable costs. Where the buyer-seller relationship ends as soon as you take ownership, the lessee-lessor partnership lasts as long as you want, complete with the added benefit of game-changing fleet management services.
We get it: leasing for the first time is a leap of faith. But the facts of financing a business vehicle in Ireland tend to favour the brave companies that take that leap.