If your internal rate of return (IRR) for investment decision making is around 6% or greater then it would make financial sense to run some discounted cash flows to assess the most appropriate approach, taking into account your VAT recovery and effective corporation tax rates.

Most of the time, spreading the cash flows over the vehicle term can be financially beneficial allowing more efficient use of capital for core investment projects. Funding products such as contract hire or contract purchase provide an even spread of monthly repayments, whereas outright purchase can require a high initial capital outlay.

The choice of funding product can also result in further savings - for example, if you have a van fleet, it may be worthwhile, depending upon your VAT recovery position, to acquire these vehicles via contract purchase, as you can recover input VAT up front on the acquisition cost.

If you have expensive cars (with a tax list price greater than £12,000) funded via contract hire, there are currently potential corporation tax savings depending upon how you calculate Expensive Car Leasing Disallowance (ECLD). Most organisations will use the tax list price, whereas it is permissible to use the actual purchase price - which can be a significantly lower value - and result in a smaller proportion of the finance lease rental being disallowed for tax purposes.

However, this potential saving opportunity only applies to cars on lease contracts which commenced before April 2009. For cars where lease contracts commenced after April 2009 the tax disallowance is based on CO2 emissions with a 15% tax restriction applicable to cars with CO2 emissions greater than 160g/km, but the restriction will not apply to cars with emissions of 160g/km or less.

You should consider reviewing your fleet mix and car policy to make sure they are aligned to the new tax rules.

You may also wish to think about your short-term versus medium-term funding needs. If your business is seasonal, it might be appropriate to fund your core fleet by contract hire or contract purchase, whilst funding the seasonal element via a shorter term product, such as Minilease, or Daily Rental (for ad hoc requirements).