Business car leasing offers all the draws of personal leasing – such as driving the latest models for a fixed monthly cost – but with the added benefit of tax savings.
The only requirement, in addition to affordability checks, is that you lease as a sole trader or through a partnership, limited company or VAT-registered company. Read on for our step-by-step guide to taking out a company car lease.
What Is Business Car Leasing?
Also known as Business Contract Hire (BCH), this form of leasing is very similar to personal car leasing but with enhanced tax savings. We’ve outlined the main benefits below:
-
Up to 100% of VAT costs can be claimed back.
-
Company car tax rates as low as 2% for electric cars.
-
A new car every few years.
-
Free delivery to your home or place of work.
-
Improved cash flow for your business, as leasing uses credit rather than capital.
What Do You Need To Lease A Car For Business?
Business leasing is only available to those leasing as sole traders or through a partnership, limited company or VAT-registered company. Use our online eligibility checker to find out if you qualify.
This is the only requirement for business lease eligibility – aside from the usual credit and affordability checks. However, these checks also apply to personal car leasing or buying a car through finance.
How To Get A Business Car Lease
From checking you’re eligible right through to the delivery of your brand-new car, business car leasing is much easier than you might expect. Follow the steps below or get in touch with our helpful advisors, who can also take you through the process over the phone or by email.
-
Find out if you’re eligible for a business lease – if you’re a sole trader, or leasing through a partnership, limited company or VAT-registered business, this should be all you need.
-
Choose a car that suits you – whether it’s a comfortable saloon for long motorway miles or a spacious estate for carrying equipment.
-
Cater your lease agreement to you – with options on duration, mileage and initial rental. Also known as an upfront payment, the initial rental is an upfront payment you make on a lease agreement. The more you pay initially, the cheaper your monthly instalments will be.
-
Once you’re happy with the terms, we’ll take a few details and run a credit check – just to ensure any agreement is suitable and affordable. Once that’s complete, we’ll confirm your order and arrange delivery.
-
Your brand-new car is delivered – to your home or place of work, free of charge. It’s that simple!
Why Is A Business Car Lease Cheaper Than Personal?
Several factors can make business car leasing a cost-effective option – especially when looking at business vs personal leasing. These include VAT relief and company car tax savings:
VAT Tax Benefits
Business leasing is often cheaper than personal as the monthly payments quoted don’t include VAT. This is because company car drivers can claim up to 100% of the VAT back – the full 100% if the car is used for business only, or 50% if there’s also private use.
It’s worth noting that business customers will pay the full monthly payments, including VAT, and then claim the VAT back from HMRC separately. Our advisors can talk you through that process, however.
Company Car Tax
Leasing as a sole trader or through a business means you’re required to pay Benefit-in-Kind (BiK) tax. The annual amount of tax is calculated from multiplying your car’s P11D value by its BiK rate, and then multiplying that figure by your income tax bracket. You can find the full calculation below.
As BiK rates are based on a vehicle’s CO2 emissions, electric car leasing can offer the biggest savings. In 2022/23, the BiK rate for pure electric cars will start at just 2%. By comparison, the rate for petrol and diesel cars starts at 22%, increasing to a maximum of 37%.
Find an example calculation below, or for more on company car tax, read our guide to charging and running an electric car.
What you’ll need to calculate company car tax:
-
P11D value – the total value of your car, including VAT and extras.
-
The car’s BiK rate as a decimal – 0.02 if it has a rate of 2%, for example.
-
Your income tax bracket – again as a decimal (0.2 for 20% taxpayers, for example).
Calculation:
P11D x BiK rate = BiK value.
BiK value x income tax bracket = annual company car tax you’ll pay.
And a real-world example of a 20% taxpayer leasing a Tesla Model 3, which has a BiK rate of 2%:
£48,490 x 0.02 = BiK value of £970.
£970 x 0.2 = £194 Benefit-in-Kind tax per annum.
Compared to a Mercedes-Benz C220d, which has a BiK rate of 29%:
£45,640 x 0.29 = BiK value of £13,236.
£13,236 x 0.2 = £2,647 Benefit-in-Kind tax per annum.
Cash Flow
A business lease is considered credit, meaning your company’s cash is freed up for investments in other areas. On the other hand, buying vehicles requires capital – meaning reduced available cash compared to leasing.
Is Business Leasing Right For Me?
Business car leasing is a good idea if you want access to a new car every few years while maintaining your cash flow. You can also save money by reclaiming up to 100% of your VAT costs and take advantage of low company car tax rates.
In our leasing guides, you’ll find a host of helpful pages on several topics surrounding car leasing – such as how much car leasing costs or deciding between personal and business leasing.
Our advisors are also available to chat you through the process and help you decide whether leasing is the right choice for your next car.
