Outright Purchase: You assume risk

How It Works:

Vehicles are financed by deposits or loans. The operator takes the risk of maintenance, repair and disposal values, but can give day to day responsibilities to a fleet management company, for a fixed monthly fee.

Advantages:

Perceived flexibility; vehicles are bought and sold as needed, without fear of penalty charges.
Low funding costs: if cash comes from deposits.
Writing down allowances: 25% of the capital cost of the vehicle can be offset against tax each year to a maximum of £3,000 pa.

Disadvantages:

Cash flow: significant front-end costs may divert money away from being invested in the company. There’s a minimum opportunity cost - what the money might be expected to earn if invested - of around 3%.
Exposure: the fleet becomes vulnerable to residual value variations and exceptional maintenance costs. This method of funding needs high calibre expertise to manage well.
VAT only recoverable if vehicles are used 100% for business.

Summary

Popular with large organisations which can enjoy economies of scale and spread the risk over a large number of vehicles. However, less than 5% of fleets with fewer than 50 vehicles buy outright and that’s likely to decrease in future as purchasing loses ground to contract hire.