​How to choose a new work vehicle

Work vehicles play an essential role in many plumbing and heating businesses, so it’s important to choose the right type. From purchasing outright to leasing or rental – there is a lot for installers to consider.

“Each product is structured differently and provides benefits and drawbacks,” points out Jason Ahmet, head of key accounts at CIPHE Industrial Associate firm Capital Fleet Solutions. “It’s worth noting that we’d always recommend getting professional financial advice before taking out any agreement.”

Finance lease

A finance lease is a flexible option which enables the use but not ownership of a van, with the vehicle remaining in the ownership of the finance company for the duration of the contract.

Installers make monthly payments based on the initial cost, the length of the lease and the final balloon payment. This type of agreement is usually for between two and five years.

“A finance lease is a good option for businesses that rely heavily on their vans, either because they cover many miles, or the vehicle could see a lot of wear and tear,” explains Ahmet. “With the intensity of use that plumbing and heating engineers have and the nature of the work, the fact that there are no mileage restrictions on finance leases is an attractive prospect. If you’re VAT registered, you can also reclaim the VAT paid on monthly rentals.”

Contract hire

Contract hire allows you to pay a set monthly fee for an agreed period and mileage allowance. Road tax, maintenance and breakdown cover can be included for an additional fixed fee, so this is a good way to combine ongoing costs.

“Contract hire agreements are designed to cover the depreciation of the van over the term, plus interest, but not the full cost of the van,” explains Ahmet. “The rental cost is based on the price of the van excluding VAT. Interest is added to the ex-VAT price of the van and the balance (minus the leasing company residual value risk / balloon payment) is paid over a fixed period. The rentals attract VAT at the current rate. Deposits are not taken; however advance rentals are usually required at the start of the agreement.”

Contract hire vans are always handed back to the leasing company at the end of the term and installers aren’t responsible for the disposal or sale price of the van. Contract hire agreements can be ended at any point during the agreement, but this may incur large penalties. Installers are responsible for ensuring the van is compliant with servicing and MOT requirements, unless the agreement states otherwise. Also, as the agreement is based on expected mileage, you will be charged if you exceed this.

“At the end of the agreement the van will be inspected for damage, and you will be charged for anything considered to be outside the fair wear-and-tear guidelines,” adds Ahmet. “The leasing company should provide you with a copy of this standard at the start of the lease and prior to collection. If not, you can search for guidance on bvrla.co.uk. Every contract is different, so you need to make sure that you know the terms of the agreement before you sign.”

Hire purchase

This is an agreement where money is borrowed to purchase a van, and paid back monthly. The deposit and term can usually be set to meet individual budgets, with deposits optional in some cases, and trade-ins accepted. There are also no mileage restrictions.

This option enables installers to drive away in a van that they may not have been able to buy outright. After the final monthly instalment and the option-to-purchase fee have been paid, the installer will own the van.

As the aim is to own the van at the end of the contract, the monthly payments may be higher than other finance options, because they include the full value of the van plus interest. Additionally, you can’t sell the van without settling any outstanding finance.

Rental

Although leasing and outright purchase are the most common methods of procuring commercial vehicles, vehicle rental, also known as vehicle hire, is a popular alternative option.

“Vehicle rental behaves in a very similar way to vehicle leasing, in that you hire a van for a fixed period and either buy it or hand it back at the end of the agreement,” explains Gemma Dickson, sales and marketing director at Herd Group, a CIPHE Industrial Associate. “Rental has a number of benefits, most notably the ability to sit off-balance sheet and the option to terminate contracts early, typically with less penalties than leasing or contract hire.”

Ownership

The main benefit to owning a van outright is that there aren’t any associated capital costs and it secures the vehicle for the long term. It can also be added as a one-off cost for tax allowances for that year.

“While it’s an attractive prospect, buying outright is a large capital outlay. You either have the funds to pay for the van or you don’t,” says Ahmet. “Careful planning is also needed to ensure that you resell the vehicle at a time when the price is at its peak.”

Eco options

When it comes to choosing the right van for your business, there is a lot to take into consideration, so determining the type of van required is a good place to start. For example, if installers predominantly work in urban areas, an electric van might be the best option.

Electric vehicles are becoming more common as businesses become increasingly concerned about their impact on the planet. As a result, low-carbon vehicles have become a priority for many fleets.

Crunching the numbers

You need to carefully calculate the size of the van required to ensure that it can store and transport equipment with ease, which means a length and height suitable for accommodating larger objects like pipes.

“Common features that businesses require are internal racking systems to help secure and transport tools and materials safely,” says Dickson. “Ply lining the walls and floor of a van is essential and makes a more durable surface.”

The payload is the maximum weight a vehicle is legally permitted to transport and it is calculated by adding together the weight of the passengers, the van and any additional specialised equipment.

“We would advise spending some time considering the payload capacity and the daily usage of a vehicle,” says Dickson. “This is an important step to ensure you have access to the appropriate quantity of payload when needed.

“If you rent a vehicle that is too big or too small, it will make a van driver’s working day more difficult, so try to find a balance between usability and payload capacity.”

When looking for a van rental deal, you’ll need to pay close attention to any mileage limits set out as part of the agreement. Going over an agreed mileage can result in an additional charge at the end of the rental.

“Consider the condition the vehicle must be returned in at the end of the rental agreement, particularly if your business is labour intensive and transports heavy-duty materials,” adds Dickson. “Understanding these charges will help you to avoid excess additional costs at the end of your agreement.”

FIND OUT MORE

Herd Group: 01372 747 333

Capital Fleet Solutions: 01329 756 373