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.
You pay 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 mostly the same as personal car leasing, except that you enjoy more VAT and tax benefits (more on that in a bit), and it’s your business details that go on the lease rather than your own personal details.
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, the vast majority of 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 there's no final balloon payment at the end to own the car, so you don't have to worry about paying that followed by the hassle of selling the car on. With business leasing, you simply hand the vehicle back, and as long as there's no excess mileage or damage that breaches 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?
Often yes, because unlike with personal leasing, you pay less company car tax and receive VAT benefits.
You can claim sums of tax back with business leasing. The amount open for you to claim depends on the level of CO2 emissions that the vehicle produces. You’ll only be able to claim back 80% of the total if your car produces higher than 130g/km CO2 emissions, whilst vehicles with lower emissions enable you to claim back the full amount.
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.
Of course, do bear in mind that your company needs to be VAT-registered in order for you to claim these perks.
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.
But unless you’re VAT-registered, you won’t be able to take advantage of the potential VAT savings above.
Benefits of Business Leasing
In addition to the tax and VAT benefits mentioned above, here's what else you're gaining from:
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Fixed monthly payments that don't change
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Brand new car with modern tech and features
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Can be used for personal as well as business use
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Optional low initial payment
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The leasing company takes the hit from the vehicle's depreciation, not you
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Road tax, breakdown cover and the full manufacturer's warranty are all included
How To Get A Business Car Lease?
Same way as you would with a personal car lease deal.
In order to arrange a business car lease, you need to:
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Via our business lease deals, find a vehicle that takes your fancy
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Adjust the deal for your preferred deposit, mileage and lease length
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Make an enquiry and receive contact from our leasing partners
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Provide relevant documents and pass any credit checks
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Await delivery
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Drive and enjoy
Am I Eligible For a Business Contract Hire Agreement?
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 credit checks (more on that in a bit).
Finance providers will expect your business to be one of the following:
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Sole trader
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Partnership
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Public Limited Company (PLC)
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Limited Liability Partnership (LLP)
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A local authority (education, social services etc.)
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A limited company
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VAT-registered business
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Embassy
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Charity
Apart from being one of the business types described above, you will also be asked to provide proof of your business, so things like bank statements, accounts, proof of ID and address of the company's main director.
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?
Most providers prefer for your business to have a financial history of at least a few months in order to be accepted for a lease, but if not, then there's still a good chance that you could be accepted.
Being able to make the monthly payments in the future is the most important thing, rather than your company's past necessarily. So you may be asked for further supporting documents, like providing a director’s guarantee or management accounts.
Get a Business Lease Car with LeaseLoco
That's business car leasing explained in simple terms.
Any of that sound good?
Then sift through our business car leasing deals, pick the one that takes your fancy, hit the Call icon or the ‘Get my quote’ button and you'll be straight in touch with our leasing partners.
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. You pay regular, fixed monthly payments in exchange for leasing a car, either with or without a large initial payment (deposit). Then, once the lease contract is over, someone simply comes and collects the vehicle after carrying out a final inspection. And if you haven't driven excess miles or damaged the vehicle beyond fair wear and tear, you'll have nothing left to pay.
Is it worth getting a business lease car?
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.