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What Is Outright Purchase?

Outright Purchase is simply the acquisition of vehicles by purchase direct from the supplier without using finance.

The fleet operator is then free to run the vehicle over any replacement cycle and dispose of the vehicle at will, though typically a specific number or months or miles will be used a guideline on when to replace a vehicle.

Additionally, it may be possible to arrange with the vehicle supplier for an repurchase or sales agency agreement.

Under a repurchase agreement the vehicle is returned to the supplier at a fixed price, thus guaranteeing the disposal value. In a sales agency agreement the supplier agrees to dispose of the vehicle on behalf of the fleet operator for a fixed payment, thus reducing the fleet operator's administration and related costs of disposal.

Outright purchase avoids direct finance charges, but ties up capital as the fleet operator will have paid the full purchase price of the vehicle around the time of taking delivery. This results in a loss of use of capital to the business and therefore a notional opportunity cost. Ignoring costs that apply across all finance methods (such as fuel and insurance), the major direct costs involved in outright purchase are likely to be depreciation, VED, and maintenance.

Advantages of Outright Purchase

Because the fleet operator takes ownership of the vehicle the fleet operator can profit from prudent management of the vehicle, such as achieving a better resale price than market value through proper maintenance and vehicle management.

Vehicles can be sold at any time (e.g. when a driver leaves employment) without a specific financial penalty (leasing companies usually charge an early termination fee for disposing of leased/hired vehicles before the full term), though the depreciation cost will be proportionately higher when a vehicle is sold before the end of its normal replacement cycle.

Tax relief for the fleet operator on cars with a CO2 output over 110g/km is not limited in the same way as leasing, thereby reducing the total costs of outright purchase for cars with higher CO2 emissions compared to leasing, but there are deferrals of tax relief.

Disadvantages of Outright Purchase

The fleet operator is exposed to fluctuations in residual values and maintenance costs.

The vehicle will appear as a depreciating asset on the balance sheet under accounting conventions applying at the date of publication.

For passenger cars (other than pool cars) VAT on the purchase price of the vehicle cannot be recovered, so the depreciation costs are higher than the comparable values in contract hire or leasing.