Trailers: to own or not to own?

Trailers: to own or not to own? Lease options

A major question for many fleet managers today is whether “to own or not to own” their trucks and trailers. Does it make business sense to purchase or to lease? The evidence points to increasing interest in leasing.  For example, the latest Quarterly Leasing Survey published by The British Vehicle Rental and Leasing Association in September 2017 reported that the total business fleet leasing market for the light commercial van segment grew last year to 371,000 LCVs by 14% year on year for Q2 2017.

What is a “lease”?

A lease is an arrangement between the lessor (owner of the asset) and the lessee (user of the asset) whereby the lessor purchases an asset and allows the lessee to use it in exchange for periodic payments called lease rentals or minimum lease payments. At the end of the lease period, the asset is returned to the lessor unless there is a contractual provision which obliges the lessee to buy the asset or renew the lease for a specific timeframe (source: efinancemanagement).

Why lease?

There are several advantages to leasing:

  • Helps cashflow – Purchasing a trailer requires a significant upfront payment whereas leasing enables fleet managers to spread their payments over several years. Choosing leasing frees up capital for investment elsewhere. Regular lease payments enable fleet managers to budget more accurately. Leasing also avoids the issue of owning a depreciating asset and the need to dispose of it once it has reached the end of its useful life.
  • Offers tax benefits – When you buy a trailer, you pay VAT on the purchase price. VAT can add up to a large sum for many transport companies as they expand their trailer fleets. In most EU countries, by leasing, you pay the VAT on the rental amount rather than the much higher purchase price. Another advantage is that the repayment of installments in a leasing contract typically counts as a business expense as opposed to owning an asset, on which you can only claim the costs of depreciation.
  • Gives access to new technology – Leasing gives you access to the latest truck and trailer technology without having to find large amounts of capital to finance a new vehicle purchase outright. Leasing makes it easier to upgrade to a more technologically-advanced trailer than you could have afforded to buy. Indeed some leasing contracts allow fleet managers to upgrade to the latest models at the end of a contract term.
  • Provides maintenance peace of mind – Many leasing contracts include vehicle maintenance. Outsourcing trailer maintenance is more cost-effective than keeping it in-house because it eliminates the fixed overheads of technicians, their training, the latest diagnostic and repair equipment and liberates capital rather than tying it up in a warehouse of spare parts. Importantly, it ensures that your trailer downtime is minimised. [source: Daily Telegraph]

Leasing differences between European countries

Leasing regulation varies from one EU country to another. The differences include the tax treatment of the leased asset. So, for example, in Germany, under some types of leasing contract, the lessee who leases the trailer is deemed to be the owner of the asset for tax purposes because the lessor/the actual economic owner does not get to use the trailers during the leasing contract. This means that the trailer is perceived by the German tax authorities as an asset for the lessee, for which VAT is paid on the purchase value of the asset and the costs are depreciated as opposed to being a business expense [source: NortonRoseFulbright]. This is different from the situation in the Netherlands or the United Kingdom, for example.

TIP and leasing

TIP offers a wide range of leasing solutions and can advise on the different leasing regulations across Europe. With a fleet of over 70,000 units, TIP is one of Europe’s largest transport equipment leasing companies. It can also purchase assets specifically for you.

TIP leasing options

TIP provides several leasing options:

  • Operating lease – This is off-balance sheet leasing with flexible terms. Operating leases are particularly attractive for high-value assets such as trucks and trailers which are needed to fulfil a specific contract. Lease rates are based on the value of the asset over the period you require it. As a result, you can link lease rates directly to the revenue your asset generates.
  • Finance lease – A finance lease allows you to acquire an asset over time rather than paying for it upfront. The lease rates are calculated over an agreed term.  The regulations for Finance Lease differ from country to country making it not applicable everywhere.
  • Sale and lease back – Under this form of leasing, we will buy your assets at a fair market price and lease these assets back to you for a fixed monthly fee, thereby freeing up your capital for other uses and assuring you do not have to worry what to do with the vehicles after a certain period.
  • Additional value-added services available across all our leasing solutions – TIP can offer replacement vehicles during repairs, maintenance, damage handling, roadside assistance, fleet and tyre management and telematics for your fleet. We remarket trucks and trailers that are no longer needed. We can also provide rental units to fill short-term gaps in your fleet.

For more information about TIP trailer leasing, please contact us using this contact form.

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