Tax-wise, buying is usually the clear winner for a small company — but cash flow is the other half of the decision.
If you buy the van for £18,000, it’s plant and machinery — a van is specifically not a ‘business car’ in the tax rules — so the annual investment allowance applies: you can deduct the full £18,000 from your taxable profits in the year you buy it, comfortably within the £1 million AIA limit. That gives you the entire corporation tax saving up front. If your profits are too low to use it all, you can choose to claim less AIA and carry the balance forward with writing down allowances instead.
If you lease on a standard three-year contract hire at £320 a month, you can’t claim capital allowances at all — you never own the van. Instead, each rental payment is a trading expense, deductible as it’s incurred: about £3,840 a year over the three years. (The lease rental restriction you may have heard of applies to higher-emission cars, not to vans.) Your total outlay is £11,520 over three years with nothing to show at the end, versus £18,000 now for an asset you keep and can sell later.
On emissions: yes, it can matter. The capital allowance treatment of cars depends heavily on CO2 figures, but for vans the AIA position is the same whether it’s diesel, petrol or electric. An electric van may qualify for other incentives, but it doesn’t change the basic buy-vs-lease comparison.
VAT-wise, if you’re VAT registered you can reclaim the 20% VAT on the purchase price in one go, or on each rental payment as it falls due.
Two caveats: this assumes business use — restrict the claim for any private use, though a van with only incidental private use generally escapes a benefit-in-kind charge — and it assumes an operating lease. If it’s hire purchase, that’s treated as a purchase and you’d claim the AIA on it.
