Introduction
For businesses that rely on commercial vehicles, the decision between hiring trucks and purchasing them outright is significant. Both options have their advantages and disadvantages, and the right choice depends on various factors specific to your business needs. This article provides a comprehensive cost analysis and examines the key considerations to help you make an informed decision.
Initial Capital Outlay
Purchase
Purchasing a commercial vehicle requires a substantial initial investment. A new 7.5 tonne truck can cost between £45,000 and £70,000, depending on specifications. Even used vehicles represent a significant capital expenditure, typically ranging from £15,000 to £40,000 depending on age and condition.
This capital outlay can impact your business's cash flow and may require financing, which adds interest costs to the total expense.
Hire
Truck hire requires minimal upfront investment, typically just a security deposit. This preserves your capital for other business investments and improves cash flow management. For businesses with seasonal needs or those in growth phases, this can be particularly advantageous.
Ongoing Costs
Purchase
When you own a truck, you're responsible for all ongoing costs, including:
- Maintenance and repairs: Regular servicing, unexpected repairs, and parts replacement
- Insurance: Commercial vehicle insurance, which can be substantial
- Road tax: Annual vehicle excise duty based on vehicle type and emissions
- MOT testing: Annual testing for vehicles over three years old
- Depreciation: Vehicles lose value over time, representing a significant hidden cost
- Financing costs: Interest payments if the vehicle was purchased with a loan
These costs can be substantial and sometimes unpredictable, particularly for maintenance and repairs as vehicles age.
Hire
With truck hire, most ongoing costs are included in the rental fee:
- Maintenance: Typically included in the hire agreement
- Insurance: Basic insurance is usually included (though you may want additional coverage)
- Road tax: Included in the hire cost
- Breakdown cover: Usually included, providing peace of mind
This makes budgeting more predictable, as most costs are fixed and known in advance.
Flexibility and Scalability
Purchase
Owning vehicles offers less flexibility:
- You're committed to the vehicles you've purchased
- Scaling up requires additional capital investment
- Scaling down means selling vehicles, potentially at a loss
- You're stuck with the same vehicles even as your needs change
Hire
Truck hire offers significant flexibility advantages:
- Easily scale your fleet up or down based on business demands
- Access different types of vehicles for specific projects
- Upgrade to newer models without capital investment
- Short-term hires for seasonal peaks or specific contracts
- Long-term hires for ongoing needs with the flexibility to change
This flexibility can be particularly valuable for businesses with fluctuating demands or those in sectors with seasonal variations.
Tax Implications
Purchase
When purchasing vehicles:
- Capital allowances can be claimed for the purchase cost
- VAT can be reclaimed if your business is VAT-registered (though this is spread over time for cars)
- Running costs are tax-deductible business expenses
- Interest on loans for vehicle purchases is tax-deductible
Hire
For hired vehicles:
- Rental payments are fully tax-deductible as business expenses
- VAT on rental payments can be reclaimed if your business is VAT-registered
- No complex capital allowance calculations are required
Hire arrangements often offer simpler tax treatment, though the specific benefits depend on your business's tax situation.
Operational Considerations
Vehicle Age and Technology
Rental fleets are typically newer vehicles with modern technology, offering:
- Better fuel efficiency
- Lower emissions (important for urban areas with emissions zones)
- Advanced safety features
- Modern comforts for drivers
- Reduced likelihood of breakdowns
Owned vehicles, unless regularly replaced, will become dated and potentially less efficient over time.
Maintenance Management
With owned vehicles, you must manage maintenance scheduling, workshop relationships, and compliance with service requirements. Hired vehicles typically include maintenance management, reducing administrative burden.
Downtime
When an owned vehicle is off the road for maintenance or repairs, it can disrupt operations. Rental companies often provide replacement vehicles, minimizing operational disruption.
Cost Analysis: A Practical Example
Let's compare the costs of purchasing versus hiring a 7.5 tonne box truck over a five-year period:
Purchase Scenario
- Initial purchase: £55,000
- Annual insurance: £2,000
- Annual road tax: £500
- Annual maintenance (average): £2,500
- MOT (years 2-5): £100 per year
- Depreciation: Vehicle worth approximately £25,000 after 5 years (£30,000 loss)
Total 5-year cost: £55,000 + (£2,000 × 5) + (£500 × 5) + (£2,500 × 5) + (£100 × 4) - £25,000 = £55,000 + £10,000 + £2,500 + £12,500 + £400 - £25,000 = £55,400
Average annual cost: £11,080
Hire Scenario
- Long-term hire rate: £450 per week
- Annual cost: £450 × 52 = £23,400
- Additional insurance excess coverage: £500 per year
Total 5-year cost: (£23,400 × 5) + (£500 × 5) = £117,000 + £2,500 = £119,500
Average annual cost: £23,900
Analysis
At first glance, purchasing appears more cost-effective over a five-year period. However, this simple calculation doesn't account for:
- The opportunity cost of the capital tied up in vehicle ownership
- The administrative burden of managing owned vehicles
- The flexibility benefits of hiring
- The risk of major repairs not covered in the average maintenance cost
- The potential for business needs to change, requiring different vehicles
For many businesses, these factors can tip the balance in favor of hiring despite the apparent cost difference.
When to Choose Purchase
Purchasing may be more suitable when:
- You have consistent, long-term vehicle needs
- Your vehicles require specialized modifications
- You have the capital available and limited alternative investment opportunities
- You have the infrastructure to manage vehicle maintenance efficiently
- Vehicle branding and appearance consistency are important to your business
When to Choose Hire
Hiring may be more suitable when:
- Your business has fluctuating or seasonal demand
- You need to preserve capital for other investments
- You require different vehicle types for different projects
- You want to avoid the risks of vehicle ownership
- Your business is growing or changing rapidly
- You operate in areas with emissions restrictions that may change
Conclusion
The decision between hiring and purchasing trucks depends on your specific business circumstances, financial situation, and operational requirements. While ownership may seem more cost-effective in simple calculations, the flexibility, reduced risk, and operational benefits of hiring often provide value that outweighs the apparent cost difference.
Many businesses find that a mixed approach works best—owning some core vehicles while hiring additional capacity as needed or hiring specialized vehicles for specific projects.
At RentalTruck.co.uk, we offer flexible hire options ranging from daily rentals to long-term contracts, helping businesses optimize their commercial vehicle strategy. Contact us to discuss how our solutions can support your specific business needs.