An experienced player in the leasing market, Andy Bell, was on hand to explain how the fleet vehicle market works and how you can set deals up to your best advantage. The workshop covered alternatives to the company car, such as employees opting for a personal purchase contract.

{John Stokdyk} Welcome Andy, Obviously everyone here is keen to hear your car leasing tips.

{Andy Bell} Fire away

{John Stokdyk} This afternoon we welcome Andy Bell of First Vehicle Leasing, who is going to conclude our Company Car workshop series. Before we start Andy, can you tell us about First Vehicle Leasing and the role you play in the fleet market?

{Andy Bell} First Vehicle Leasing is an independent finance broker specialising in vehicle funding methods.

{Jon M} Thinking about changing our company car policy away from a central lease agreement to individual allowances. Would we have to have a central agreement in place to get the best value for our company car allowance holders or are they better doing it themselves?

{Andy Bell} Jon, this opens various cans of worms. If your company arranges special terms for your employees via a manufacturer or funder, then this could be perceived as a benefit and therefore taxable.

{John Stokdyk} We’ve had several sessions on the tax implications on company cars – and a lot of our accountant members are fairly hot on the tax issues. Since Andy’s speciality is finance, I’m hoping as the workshop progresses he’ll be able to give participants a few tips on how they can secure better car deals. But feel free to return to the discussion on tax issues if that’s what’s worrying you. We’ll also come back to the issue of personal contract arrangements later… stick around!

Financing options
{John Stokdyk} Andy, I’ve paid a visit to your website www.fvl.co.uk and was taken aback by the variety of financing possibilities. Can you describe the differences between leasing, contract hiring, hire purchase and finance leasing?

{Andy Bell} John, there are many different names given to various methods of financing. However, fundamentally there are only really two methods of acquiring a vehicle – 1) to buy 2) to rent (operating lease contract hire). The phrase lease is banded about and covers a multitude of hire purchase methods. Contract hire can have various add-ons including maintenance, road fund licence, gap insurance, relief vehicle and AA/RAC cover.

{Adrian} A simple description of the varying tax and accounting treatments of the options would be appreciated.

{Andy Bell} Adrian – the tax and accouting implications would be very difficult to cover here, however if you go to www.cartax.co.uk you will find everything you ever wanted to know and more

{John Stokdyk} What about the cost implications, Andy? Are there any significant differences in the long-term costs of the different operating lease arrangements, or do they all balance out in the end? Do you tend to find there is a “typical” arrangement for a smaller company, say one that leases up to 5 vehicles for employees?

{Andy Bell} Most companies who do not want ownership would have to go down the contract hire route. The difference in pricing would vary significantly depending on several variables: volume related bonus (VRB) from the manufacturer, any additional support the manufacturer may offer for a larger fleet, dealer discount and of course cost of money.

{John Stokdyk} Which factors have the most effect on the actual rate that a company (or individual) will pay for a lease?

{Andy Bell} John there main three factors would be the price of the vehicle, the residual value and of course interest rates.

{John Stokdyk} And to put you on the spot Andy, where can you as a broker have the most effect?

{Andy Bell} A broker, unlike the actual funding company, will have many different funders to choose from. The diffrence from one company to another can be up to £60 per month on an average car, all other factors bieng the same. As well as this a good broker will tend to have much more discount than your average funder.

List price
{John Stokdyk} Could you help us out by explaining the relationships between list prices and residual values. The list price is important for the employee (and employer) because of the tax calculation, but how important is the residual value to the cost of a car over the term of its lease?

{Andy Bell} The residual value makes a huge difference. If one contract hire company happens to like a particular make, for example Mercedes, and another dilikes them you could see a difference of up to £3,000. That would cause the rate to be very different.

{John Stokdyk} If you’re looking to put together a car package for a company would you always advise going with models that promise higher residual values?

{Andy Bell} What a broker would always do is make sure he is using a company that likes vehicles and uses higher residual values.

{John Stokdyk} And how easy is it to find out whether contract hire companies are using a high or low residual value? Do they make the residual values clear on which they base their proposals?

{Andy Bell} Basically with contract hire, you will never know how the residual has been set, however this is probably the single most important factor, next to vehicle price.

{John Stokdyk} Are companies open to negotiation on the residual values they use?

{Andy Bell} They are open to negotiation on the rental rate, which will affect the residual.

{John Stokdyk} The personal contract purchase seems to excite the most interest from people here – can we turn to that? Andy, several people have predicted that the new tax regime next April will encourage people like Jon to consider the PCP option. Can you tell us some of the advantages and disadvantages of following this route?

{Andy Bell} Firstly “they” have been saying for years that PCP was the way forward. Drivers have been phoning us up who have been given the option of keeping their company car or a monthly allowance to get their own car. Their perception of the monthly allowance is that it will let them pick any car they want.

I personally believe that once everyone has looked in to the various implications, it won’t catch on at all… If a company takes a contract hire agreement out, there is a hidden discount given by the manufacturer that the customer or dealer will never know about. This would not apply to PCP. This hidden discount can be as much as £4,000 + VAT on some models. This one factor kills PCP in many circumstances.

{John Stokdyk} Some of the funders are putting a lot of effort into promoting PCP packages – from your experience, are they really keen on PCPs?

{Andy Bell} In my experience most funders who are used to dealing with businesses are very nervous about dealing with private individuals. Individuals tend to have more protection from consumer legislation and because of the higher risks, funders tend to reduce the residual value on a given car significantnly. This combined with the VRB (hidden discount) issue again makes PCP expensive.

VRB
{John Stokdyk} Can you tell us a little more about how the VRB works.

{Andy Bell} The VRB issue is one of the reasons you always hear the stories about how cars are much cheaper in Europe. In the UK, manufacturers tend to hide discuonts in deals they make with contract hire companies. A car can sit in a showroom with a £15,000 price tag – but an employee won’t know there’s a £2,000 discount in there. If they get a PCP on that basis, they won’t get the discount – because the manufacturer does not want anyone to know. Funders are negotiating with manufacturers to be able to use the VRB in PCP contracts. But the PCP has to show the value of the car in the document. A contract hire agreement doesn’t.

{John Stokdyk} We’re coming up to the end of the workshop, so if anyone else has any questions for Andy, get them in!

{Mike} I would like to know the main benefit of contract hiring a vehicle over lease purchase, Andy.

{Andy Bell} Mike, lease purchase is basically hire purchase with a ballon payment (which you take the risk on). Also because you are buying the car, you would be funding the full VAT price of the car and you will not get any VRB. With contract hire, the funder is only funding the net of VAT amount and will include any VRB that is available. They also take the full risk on residual.

{Mike} Is there any more tax relief on contract hire?

{Andy Bell} Mike yes there is, generally. If anyone would like to discuss any issues after this please call me on 0845 458 3240

Tips
{John Stokdyk} Before you go Andy, are there any general tips you would suggest to fleet managers reviewing their arrangements before next April?

{Andy Bell} Talk to three different companies, if you are dealing with a broker check them out and be sure they are credible – generally a broker will find you a better deal. We can identify price differences between contract hire companies to get you a better deal. Or we can make deals with manufacturers to get a discount if we guarantee to get a particular number of cars on contract hire.

{Andy Bell} If cost is your main consideration, it helps to be flexible on the models you consider. If a person wants a specific car, such as a BMW 318se with a sun roof and all the trimmings, the quotes will be much of a muchness. But a broker may be able to find a better offer if the buyer is willing to be flexible. For example, I can get a Mitsubishi for £180 a month that compares very well to the BMW Series 3.

{John Stokdyk} Once again, thanks for coming along at such short notice and for sharing your advice, Andy. The response to our Company Car page has shown that a lot of AccountingWEB members are thinking about fleet issues at the moment. We’ll continue to cover the area and will no doubt talk to you again, Andy. Meanwhile, come back next week to hear about the new Fulcrum Accounts spreadsheet system for incomplete accounts. The developer, Richard Murphy, will be here to explain all.

{Andy Bell} 10 10

{John Stokdyk} So long – and thanks everyone for coming.