Guide to vehicle whole-life costs

‘Whole-life cost’ refers to the cost of acquiring, managing, running and maintaining a car or van for the entire length of a contract or however long you wish to retain that vehicle.

What makes up the whole-life cost of a vehicle?

Whole-life costs cover much more than the purchase price or monthly rental paid as part of a lease agreement so when you are putting together a monthly or annual budget you need to make sure you account for all of these and more importantly, ensure that your vehicle supplier does too. 

The following considerations are applicable to both individuals and businesses.

Purchase price

This is not the manufacturers retail price, it’s the price you actually pay for the vehicle, including any discounts you have managed to secure. You may pay cash or you may finance a percentage of that figure (see below)

Fuel costs

Fuel costs can be worked out based on the mileage that your vehicle will do each year and there are many fuel cost calculators available, including ours. Although calculators can’t account for how a vehicle is driven, they will give you a guideline cost to put in your monthly and annual budget

Service, maintenance and repair (SMR)

There are a variety of costs that will come under SMR, some being more easily predicted than others. SMR costs are provided by manufacturers and there are a number of ‘whole-life cost calculators’ which pull data from specialist third parties to give a pence-per-mile cost, based on a predicted annual mileage. These costs will include regular servicing needs, replacement tyres, wear and tear replacement parts such as brake pads, bulbs, and filters. For cars doing higher mileages you may make a contingency for more expensive items such as brake discs and shock absorbers.

Damage costs

Vehicles get damaged, whether it be unaccountable dents and scratches or more serious collision damage. It’s impossible to predict damage but historic invoices may give you an indication of how much to budget for damage repair.

If you have purchased your vehicle or have it on a finance lease for example, the choice to repair damage is yours. However, if you have taken a vehicle on a contract hire agreement you will have to repair anything that is deemed to be above BVRLA fair wear and tear guidelines You may choose to repair vehicles on your insurance policy which is fine, but it may impact your insurance renewal cost (see below).

Breakdowns and replacement vehicles

If you don’t have breakdown cover and replacement vehicles as part of your supplier contract then you will need to account for this as even new cars can be prone to breakdowns. Similar to damage, this can be hard to predict but again, historic data may give you an indication of how likely this is to happen again, particularly with high mileage vehicles.

Vehicle excise duty (VED)

VED or what is often referred to as road tax is another fixed cost although it may be included in your monthly payments, depending on how you financed your vehicles. One thing to be aware of is annual increases in VED charges which can increase your annual costs. In 2017 and 2018 the government made significant changes to VED charges which hit diesel and high value vehicles particularly hard. VED is based on a car’s CO2 emissions which denotes its banding.

Finance costs

Unless you are paying cash for a vehicle there will be financing costs to account for. If you have borrowed in order to finance the vehicle then the interest must be accounted for.


You will either insure a vehicle individually or add it to a fleet policy. Whichever the case, this cost needs to be taken in to account. The more vehicles you acquire then the higher your fleet insurance premium may be as may be the case if you have a claim through the course of the year.

Residual value and depreciation

This is often not considered a cost at all and yet it is in fact one of the biggest costs if you have chosen to purchase a vehicle with cash or finance (not contract hire though). The residual value refers to the value of the vehicle when you have finished with it – end of life. Depreciation is the difference between that value and the cost of the vehicle when you purchased it. As the vehicle may sit as an asset on your company accounts you will need to know this.

There are other things to consider when calculating whole life costs for both individuals and businesses:

For individuals

Company car tax

If your company provides you with a company car then you are responsible for BIK (benefit in kind) at their PAYE tax rate. This is calculated based on the car’s CO2 emissions. BIK rates for vehicles are expected to rise for the next few years so you should consider these costs carefully when choosing a vehicle. Our BIK calculator will help you understand your commitment in more detail because you need to make sure you are making the right decision.

For businesses

If you purchase vehicles, you can deduct a percentage of the value from your profit before tax in the year it’s purchased. There’s generally three options for new cars based on CO2 emissions:

Co2 emissions level % deduction
Under 50g/km 100% under your first-year allowance
51g to 110g 18% using write down allowance
Above 110g 8% using write down allowance

Leased/rented vehicle tax relief

If you lease or rent your vehicles you can deduct a percentage of the monthly rental payments from the company’s profit before tax. The percentage is based on CO2 emissions:

Co2 emissions level % deduction
110g or less 100%
Above 110g 85%


VAT is added to all vehicle associated costs, but the amount that can be claimed back varies depending on the vehicle and it’s uses.

VAT on what % of VAT that can be claimed back
Car purchase or contract hire 50%
Van purchase or contract hire 100%
Maintenance on all vehicles 100%


It can seem like a daunting prospect trying to understand the true whole-life cost of vehicles and one that, given how easy it is to get quotes for new vehicles, can sometimes be overlooked. There are also many suppliers in the industry who will look at your budget and use it entirely on the acquisition cost of a vehicle and not account for all the factors above.

There are plenty of online tools available but there are also people who you can talk to who will give you the support and information you need and protect your budget.

Get in touch

Contact us or call us on:

0113 387 4240