The car finance option you choose for your business can have a huge impact on your business cash flow and your tax bill. So before you start shopping, take the time to ask an expert what’s available and which option will work best for you.
Vehicles are constantly evolving and improving. There is always something ‘new’ on the market, whether it’s a new model, or brand new technology. Once you start thinking about upgrading your vehicle, it’s a good idea to talk to your Business Manager who can help assess your current position and create a personalised funding solution.
As a car finance specialist, they can help you weigh up the cost of financing your vehicle versus the possible income the car is capable of generating.
There’s a lot more to choosing business vehicle finance than just finding the lowest interest rate. By selecting the right option then tailoring it for your business, you could put new vehicles to work faster at a lower overall cost after tax. You can even choose to upgrade your vehicles cost-effectively at the end of your finance term, so your business will always have a high-performance, low-maintenance fleet at the ready.
Key questions for business vehicle finance
Start by thinking about a few key questions:
Are you buying vehicles for your staff that will be used for a combination of business and personal use? If you are, then a Novated Lease may be ideal.
Would you like to own the vehicle at the end of the finance term, or upgrade to a new model? If you’d like to own the vehicle, then a Chattel Mortgage or Hire Purchase could be the best option.
Do you only want to keep your car for a couple of years, to minimise the risk of being left holding an outdated model with falling market value? In that case, a Finance Lease could suit your business.
Do you account for GST on a cash or accruals basis? If you use accruals-based accounting, Hire Purchase may give you a better after-tax outcome.
Once you know exactly what you’re looking to achieve, it’s time to talk to a finance expert. Your accountant is the best place to start, as they can advise you on the best options for you and your business. After that, Business Manager can help you tailor a solution your specific business requirements.
Buying vehicles for your staff
Salary packaging is a great way to offer flexibility to your employees, and attract and retain great staff for your business. So if you want to include a vehicle as part an employee’s package, a Novated Lease may be the best type of finance for you.
With this option, the lender owns the vehicle and you make lease payments on your employee’s behalf from their pre-tax salary. This saves your staff the time and effort of organising their own car finance, and could also save them money compared to buying a vehicle from their after-tax income. Once the Lease ends, your employee can take out a new Novated Lease to upgrade to the latest model.
Finding tax savings
Certain finance options may be better for you and your business when it comes to tax. For example, if you take out a Finance Lease — where the lender owns the vehicle and you make regular lease payments for an agreed term — your repayments are tax-deductible.
Depending on your situation, you may prefer a finance option where both interest payments and depreciation on the vehicle are tax-deductible. In that case, you might utilise a Hire Purchase, where the lender owns the car and you buy it over time, or a Chattel Mortgage, where the lender takes out a mortgage over the vehicle to cover your loan.
But remember, everyone’s business and tax situation is different. So before you make any decisions about car finance, talk to your accountant to help figure out what’s best for you.
Upgrading your vehicles
The finance you choose not only affects how much you’ll need to pay straight away — it can also make it easier to upgrade to a new model. For example, if you choose a Finance Lease, you have the option of simply returning the vehicle at the end of the term and upgrading to a new model. Or if your vehicle still suits your needs, you can refinance with a loan once the lease expires. The choice is completely yours.
Finding the right option
Choosing the right business car finance can be complex, so it’s important to talk to an expert before you buy. A Volkswagen Business Manager can guide you through the finance maze, helping you to choose the right finance option, then structure your repayments to achieve the best result for your business. Simply contact your nearest Volkswagen dealer for an obligation-free consultation.
Using cash to finance your car
If you have access to it, cash is a quick and simple funding solution. However once that cash leaves your account, will you have sufficient funds available for day to day expenses and emergencies? you should consult your accountant to see if this is the most tax effective option for you. Car finance can also be quick and simple and is available in a few different formats.
Please note that this information is general only, you should not rely on it, and you should consult your accountant/financial advisor for specific advice before pursuing any course of action.
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