When it comes to a lease vehicle, you've got the choice of either a personal car lease or a business car lease. As a company, you'll want to choose the latter.
But how does business car leasing work, and why is it the best option for your company?
We explain all here.
What is Business Car Leasing?
Business car leasing (or Business Contract Hire) is a contract agreement whereby you take out a car for an agreed length of time and then return it at the end of your lease.
Your company pays regular, fixed monthly payments for the pleasure, and what you pay is largely determined by how much the car is expected to depreciate (decline in value) over the term of your lease. You can choose to put down a higher deposit to make your monthly payments more manageable.
Business car leasing is actually pretty similar to personal car leasing in its fundamentals, but it's obviously your business details that go on the lease rather than your own personal details.A main difference is that business leasing benefits from more VAT and tax benefits (more on that in a bit).
Sounds An Awful Lot Like PCP?
There's a few key differences.
For starters, leasing usually works out cheaper than PCP, which is why we include a 'savings vs PCP' figure attached to many of our deals (find out how we calculate our leasing vs PCP savings figures).
Plus, lease vehicles are brand new whereas PCP includes used vehicles as well, although used lease cars are slowly making their way into the leasing market.
Another big difference with leasing is that your business won't have to worry about a big balloon payment at the end in order to own the car, meaning you also won't have to worry about selling the hassle on. With business leasing, you simply hand the vehicle back, and as long as there's no excess mileage or damage that goes beyond fair wear and tear regulations, you'll have nothing left to pay.
In short, leasing is not only more affordable but also more flexible for giving you instant access to a vehicle without the pressure of ownership somewhere down the line.
Is Business Leasing Cheaper Than Personal Car Leasing?
It can often work out cheaper, because unlike with personal leasing, you receive more tax and VAT benefits.
Businesses can claim tax relief on leased vehicles, but the amount depends on CO₂ emissions. Cars emitting 50g/km or less qualify for 100% tax-deductible lease payments, while higher-emission vehicles are restricted to 85%. VAT-registered businesses can typically reclaim 50% of the VAT on lease payments, or 100% if the vehicle is used solely for business.
If you use the car exclusively for business use, you can reclaim up to 100% of the VAT. Or if you use the car for both personal and business use, you can reclaim up to 50% of the VAT. Either way, that's quite a significant saving.
Your company will need to be VAT-registered in order to benefit from the above.
Can I Take Out a Business Lease If I'm Self-Employed?
Yep, you can choose to take out a personal or a business lease if you're a sole trader or self-employed. Again, your business will need to be VAT-registered in order to benefit from some of the finer perks.
Find out more about self-employed car leasing
Benefits of Business Car Leasing
In addition to the tax and VAT benefits outlined above, your business will also benefit from:
-
Fixed monthly payments that don't change
-
Brand new car with modern tech and features
-
No need to put down a large initial payment/deposit
-
No depreciation worries
-
Perks included (e.g. road tax, manufacturer's warranty)
Find out more about the benefits of a business car lease
Business Car Lease Eligibility Checker
Your business will need to be registered either as a public limited or a limited company, and you’ll have to provide certain proofs such as bank statements, proof of address, ID of the company director, and go through some basic credit checks (more on that in a bit).
Finance providers will expect your business to be one of the following:
-
Sole trader
-
Partnership
-
Public Limited Company (PLC)
-
Limited Liability Partnership (LLP)
-
A local authority (education, social services etc.)
-
A limited company
-
VAT-registered business
-
Embassy
-
Charity
What Business Credit Score Do You Need To Lease A Car?
Similar to a personal lease, you will need to pass a credit check and be approved by the finance company providing the funding for the deal. That's because they need to be assured that you will be able to make the monthly payments.
Like with a personal car lease, business car lease deals are subject to the approval of the finance company providing the funding for the deal.
That being the case, most finance providers require your company to have a credit score considered 'fair' to 'good' (so around the 700 mark) in order to have the best chance of passing the credit check.
Which means that if you're the company director and have poor personal credit but your business has strong credit, you may still be able to get approved for business car leasing.
What If My Business is New?
As part of the application process for a business lease car, you will be asked to provide proof of your business, which could mean bank statements, proof of ID and details about the director of the business.
Most providers prefer for your company to have a financial history of at least a few months in order to be accepted for a business car lease.
If you don't have that, then it's still possible to be accepted for a business lease. You may be asked to provide further information, supporting documents or a director's guarantee in order to prove that your business will be able to make the payments. And arguably that's the most important thing – being able to afford the lease.
Get a Business Lease Car with LeaseLoco
That's Business Car Leasing 101.
Sound good?
Then head to our business car leasing deals and get your business on the road.
Business Car Leasing FAQs
How does business vehicle leasing work?
Business car leasing (or Business Contract Hire) works much the same way as personal leasing, except you're leasing the car as a company rather than as an individual. You pay regular, fixed monthly payments, and may choose to put down a large or a small initial payment (deposit) at the start of the lease.
Is it worth leasing a car through my business?
If you enjoy low monthly payments and not having to worry about the hassle of selling a car on, then business car leasing is absolutely worth it. Also, business lease deals give you tax and VAT benefits that you don't get with personal car leasing.
Can I use a business lease car for personal use?
Yes, vehicles taken out on business car lease deals can be used for your own personal use. However, if you choose to do this, you will only benefit from being able to claim back 50% of the VAT, rather than 100% of the VAT. Whereas if the vehicle is used for business purposes only, 100% of the VAT can be reclaimed.