All About Running a Micro Fleet & Micro Fleet Leasing...
Running a micro fleet can be a full time job. Read about everything you need to know here @CarLease UK from Planning to Management & Small Fleet Strategies...
For many of the UK’s SME’s, managing a micro-fleet (5 cars/vans or less) can be a daunting task. Many business owners are concerned about cost-savings, director responsibilities, fuel-costs, company car tax and returning a vehicle after a lease. In a nutshell, fleet management is about putting in place processes and systems which ensure the transportation element of your business (cars or vans) is managed efficiently, cost-competitively and legally. As part of this, many small businesses need to consider a number of practical points to determine how they will proceed. For some bigger fleets, more in-depth fleet management is required and, as such, they do need bespoke systems, software and configurations to ensure the fleet is operated professionally and efficiently.
For the small fleet, the same level of assistance is not always required as many of the potential pitfalls and issues can be overcome with practical steps, planning and the correct strategy.
One of the first considerations, which has become very topical since 2016/2017, is the fuel type of your vehicles. With choices including petrol, diesel, PHEV and electric, there are a number of options which your business can utilise. Historically, the diesel engine was selected as the principal form for any company car. Much of that was based on the fact that a diesel engine offered lower CO2 and higher MPG which seemed to keep both the individual driver and the company happy. With any fuel consideration you do have competing interests between the driver and the company; a driver may push for a higher performance vehicle to enhance their image or they may ask for an electric vehicle to negate their company car tax exposure.
Much of a company decision should be based around an anticipated monthly budget and the annual mileage of the employee, as this often clarifies the types of vehicle which can be procured. For a driver covering 30,000 miles per annum, a higher performance petrol engine or a fully electric vehicle may not be an appropriate route in that same way that a driver covering stop/start low mileage journeys would be advised to avoid a diesel vehicle. For a company which is benefiting from tax allowances on contact hire, they need to review the g/km of CO2 for any vehicle. For example, before 1 April 2018 a vehicle up to 130g/km of CO2 was 100% allowable against tax but from 1 April 2018, this applies for vehicles emitting 110g/km and below only.
For the tax-conscious driver, you are likely to be asked to review more CO2 friendly vehicles. As the BiK (Benefit in Kind) payable by a driver is based on CO2, the P11d value of the vehicle (the list price plus delivery, options and VAT) and their own tax position, they have to carefully consider their next company car. Moving forwards, the rate of BiK is increasing substantially, as the Government seems to be encourage companies to consider more CO2 friendly cars (and vans). Company car drivers also have to note the diesel supplement of 3% on BiK which will only be removed in 2021.
To add further consideration, VED (Vehicle Excise Duty), Congestion Charges and Low Emission Zones are likely to influence fuel choice. For a business operating in London (or any cities where this is now in force) you have to consider the cost impact. These are effectively form part of the “whole life costs” view. This essentially means that a business should not only concentrate on the acquisition price/monthly costs but should also think about servicing, maintenance, tax, running costs and fuel expenditure
Low Emission Vehicles – Car”E”Lease UK
Taking into account some of the factors above, you may consider that an “eco” car is simply the only decision you can make for your fleet. While the Government is pushing for this to be the case, achieving it will be another thing entirely. For example, an electric vehicle will not be for everyone and every business – the clear advantages are the low company car tax, congestion zone exemptions, lower fuel costs and improved corporate image BUT there are significant disadvantages including low ranges/distances, charging the vehicle at home or at work, expensive acquisition and still unknown whole life costings.
On the electric-side, vehicles choice is still limited, in that only certain manufacturers are producing genuine options which can be utilised. Added to that is the expense in leasing the vehicle, the lengthy lead-times and still a lack of support from the Government both financially and regulatory. This is not to say a fully-electric vehicle should not be considered; quite the opposite in fact. For a micro-fleet, with limited time and knowledge, they need to choose this type of vehicle in full knowledge as to how they operate (think charging points/driver-training). Clearly these vehicles are a huge part of the automotive future but for a business which is time poor and has limited resources, this might not be a solution (until Elon Musk releases an affordable Tesla!).
Without a doubt, the PHEV (Plug-in Hybrid Electric Vehicle) has been a direct reaction to the new eco-leasing market. Commonly these are petrol vehicles with a lithium-ion battery which can be re-charged by plugging it into an external source or through the engine. With some benefits of electric vehicles (lower emissions, lower fuel costs) the PHEV can offer a practical driving solution and remove some of the “range anxiety” which arises with an electric vehicle. However, these vehicles do rely on the driver charging and utilising them properly otherwise they can become an inefficient petrol vehicle. The PHEV range of vehicles is very buoyant across the manufacturer range and with BMW, Mercedes, Volvo, Kia and Volkswagen (to name but a few) producing viable options, companies (and their drivers) are somewhat spoiled for choice.
For many drivers, the low-emission vehicle is likely to be a great company car tax solution. However, do be aware that the monthly rentals on these types of vehicle are generally more substantial than a diesel or petrol alternative. To ensure you are making the right decision, simply conduct a brief whole of life cost exercise on comparable vehicles. If the driver truly objects to petrol or diesel based on the BiK exposure, you could consider a car allowance instead.
Service and Maintenance
Notwithstanding the car or fuel-type you choose, you do need to reach a conclusion on how a vehicle will be maintained. As we are a credit broker, we operate with a number of finance companies and this means that there are different terms and conditions on approach to maintenance. All the cars we supply are brand-new and this means that they each have a warranty (between 3-7 years manufacturer dependent). However, a warranty does not cover your servicing obligations, it only exists to cover any faults or issues which arise through no fault of the driver. Modern cars require servicing based on service intervals, which will be a time period (every 12-24 months) or mileage based (every 10,000-20,000 miles).
The main two choices for your fleet are:
If you do elect for option 1, you do have to ensure you have a practical procedure in place to ensure all vehicles are maintained accordingly. Depending on the finance company which is utilised for the vehicle, the business has to decide if the vehicle will be serviced at a franchised dealer, a local independent garage or work with a mobile/fast-fit type supplier. While a car will often tell when a service is due, this will rely on you carrying out regular checks on your vehicles or the driver telling you that a service is due. You will then have to arrange the necessary servicing (or tyres) using one of the routes mentioned. Ensure that any servicing adheres to manufacturer recommendations so that the warranty is preserved appropriately; do not cut corners with parts as this is will only create issues in the future. The same does apply with tyres, so do not try to reduce cost with budget or part-worn tyres, as the finance company may charge you for this at contact cessation.
In the alternative, you may include all maintenance via the “funder-maintained” option. For a VAT-registered business, you are able to reclaim all of the Vat on this monthly figure. In addition, many finance companies supply a card to you, and the driver, with one telephone number to call for any servicing, tyre or breakdown recovery situation. With some basic driver-training, your employees can arrange all of this with minimum inconvenience to you and the business. Finance companies will allow you to utilise a franchised dealer (so you have comfort for warranty) and can also offer mobile fit solutions if you do not want a driver to be out of action.
Much of your decision on maintaining a fleet will come down to the annual mileage of your vehicles, what your vehicles are doing and how competent you are with vehicles. There is no right or wrong answer; it is very much about pursuing a route which best meets your needs. For example a fleet of two vehicles covering less than 10,000 miles per annum may be an easy proposition for some business owners and they may consider that to self-maintain is a cheaper, and easier, option. Our advice is to get a quotation for a driver and funder-maintained quotation in every instance and then, using service intervals/mileage, work out what you think it would cost to maintain the vehicle.
Driver Training / Telematics & Vehicle Tracking
For any size of fleet, driver training is something which should be considered as part of education, risk awareness, fuel consumption and maintaining vehicles properly. While this can be an expense to a small fleet, this does demonstrate a positive approach to health and safety from the company and can also help your drivers to perform better with their cars – this could reduce accidents, fuel costs and damage to cars/vans. It can also be useful to show to your insurance company when you are negotiating fleet insurance.
As part of your training ethos, you might want to consider installing telematics and dash-board cameras. A telematics system will allow you to track and monitor a driver to ensure they are driving responsibly. Again, this could reduce your insurance costs (and make drivers aware you are monitoring their driving). Additionally, many individuals and fleets are looking to dash-board cameras as part of risk-reduction. These supply unequivocal evidence for front facing collisions, which has been a significant issue on the UK roads. For a relatively nominal cost, you can add this protection to your company vehicles (some finance companies are now providing these FOC).
Presuming that contract hire is your preferred funding method (some companies may consider hire purchase or finance lease), you do have to make a decision on the contract length. With terms between 24 and 60 months, there is often flexibility available to the company. Many contracts are based around 36 months, as this tends to be the warranty period for most vehicles. However, as contract hire is a fixed term agreement, it is not possible to simply return the vehicle free of cost if your circumstances change or if an employee exits the business. For a company which is risk averse, a 24 month contract may be more attractive, as this reduces any liability on the contract. However, shorter-termed contracts are often more expensive per month, so there are cost considerations with this. In addition, the can be inconvenience in replacing your company vehicles, as to perform this every 24 months may be frustrating. In the alternative, a 48 month contract could be a solution for a company which is happy with a specific vehicle and wants to reduce their monthly leasing costs. Again, there is no right or wrong answer and your business circumstances will often set the route moving forwards.
Annual mileage is another consideration with your contract. Between you and the driver you need to work out anticipated annual mileage. With contact hire, the more miles you require the higher the monthly rental will be. Added to that will be the maintenance costs (if a funder-maintained package is included). With annual mileage, do try to work on the basis of realistic data – if you are using telematics and fleet management already this will be fairly easy to obtain. Do not undertake a contact with low-mileage to reduce your monthly rental, as there will be excess mileage charges payable at the end of the contract. In the same way, do not overstate your mileage as there will be no remuneration for unused mileage at the contact end. Essentially you are paying too much for unused miles. By conducting annual mileage reviews, you can monitor the vehicle’s mileage. Some finance companies will allow you to increase, or decrease, the mileage after a 12 month interval.
Learn more about car leasing and mirco fleet leasing in our Help and Advice pages or feel free to talk to one of our dedicated micro fleet team here at CarLease UK. You can also read lease car and van reviews and news in our car blog...
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