How does business car leasing work?

Whether you want to bolster your professional image or take advantage of the tax benefits, business car leasing is a simple and cost-effective way to access brand new vehicles for you and your team.  

Available to sole traders, limited businesses, or those in limited partnerships and Limited Liability Partnerships, a business lease car allows you to upgrade your company car every few years for a low monthly cost. 

Below, we explain how business car lease deals work, how they compare to personal leasing, and how you can save money with a company car lease. 

What is business car leasing

Instead of buying a car outright, business car leasing allows you to access new vehicles for a fixed monthly payment, usually over a period of between one to five years. 

Because you’re not covering the full cost of the car, a business car lease can be much more affordable than other types of finance like Hire Purchase. What’s more, if you use the car exclusively for business trips, you can reclaim 100% of the VAT on rental payments, servicing costs, fuel and mileage. However, any personal use of the vehicle will reduce the amount of VAT you can claim back.  

How does business car leasing work? 

Available makes and models vary from provider to provider, but whether you need executive transport or a transit van, business car leasing allows you to find a vehicle suited to any requirement for a low monthly cost.  

In order to be eligible, your business must be currently trading, able to demonstrate strong profits, and pass a credit check to prove you can meet your monthly lease payments. 

At the start of your contract, you’ll make an initial payment equivalent to between three and twelve monthly instalments, which is then deducted from the total cost of the lease price. You’ll see this configured as something like ‘6+23’, which means you’ll pay six months up front and the remainder in 23 instalments. 

You’ll also agree a maximum annual vehicle mileage with your provider, which can generally be anything from 8,000 to 40,000 miles a year. If you exceed this figure, you’ll have to pay an excess mileage charge, so be realistic in your estimations and, if anything, give yourself some breathing room. 

Business leasing vs personal leasing

The main difference between business car leasing and personal car leasing is the ability to reclaim VAT off your monthly rental payments and contract maintenance charges, which can save you up to 20% of the cost of an equivalent car on a private lease.  

That said, if you use your car for a combination of business and private trips, you will only be able to claim some of the VAT back. Likewise, if your employee uses their company car for personal reasons, they’ll have to pay a benefit-in-kind tax, which is based on the list price of the car and its CO2 emissions. The lower the emissions, the lower the tax. 

Pros, cons and tax benefits

Pros

  • Cost effective – access new cars for a low monthly payment and reclaim VAT
  • No depreciation – the lease provider absorbs the cost of your vehicle’s depreciating value so you don’t have to
  • Write it off against your profits – you can enter your leased company car on your balance sheet and write it off against profits

Cons 

  • Charges – if you exceed the mileage, return the car damaged, or fail to maintain it properly, you’ll be charged 
  • No modifications – as the car has to be returned in its original state, you won’t be able to modify it or brand it in any way
  • Insurance – some providers offer ‘complete care’ packages, but if not, you’ll be responsible for taking out a suitable insurance policy. Make sure to mention that the lease company is the registered owner of the vehicle. Failure to do so could invalidate any claim

Next steps

Not only are new cars expensive, they can lose up to 60% of their original value within three years. In a small business where margins are tight, business car leasing allows you to drive around a brand new car for a fraction of its actual cost. 

As well as taking advantage of the latest tech and safety features, you and your employees can present a professional image when out and about, and access a variety of vehicles to suit different needs. Just make sure to be realistic about your projected mileage and shop around to find the best deal. 

Want to find the perfect lease for your business? Why not use our comparison tool to be matched with the most suitable provider for your needs.

Simply fill in our free quote-finding form, and answer a few questions about your business (it takes less than a minute). We’ll match you with the best leasing provider.

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