The Benefits of Leasing A Car Through Business

What are the benefits of Leasing a Car Through your business? There is a dilemma among people whether they have to lease a new car personally or through my limited company. Let us discuss in detail regarding everything.

How does the process of Car Leasing work?

When you lease a vehicle, you pay a predetermined amount of money to a leasing company for the right to drive a brand-new car for a set length of time.

Your monthly payments will be used to cover the cost of the vehicle’s depreciation throughout the term of the contract. When the leasing agreement expires, you return the vehicle.

In contrast to lease purchase, auto hire purchase, or personal contract purchase, you never own the car and have no opportunity to purchase it – the financing company is the legal registered keeper of the lease car. During the contract, you are still liable for all operating and maintenance charges, including speeding citations on the leasing automobile!

When your contract expires, you are free to sign a new contract for a new vehicle.

Leasing a brand-new car may be an extremely efficient and cost-effective method to get on the road.

How to lease a car through a business?

When you are leasing a car through your business, for both professional and personal usage, one feature remains unchangeable: corporate car tax.

There is no getting around that. If you are an employee who uses a business vehicle for personal reasons, HMRC requires you to pay benefit in kind tax for the benefit you receive from the car.

The BIK rates you must pay are determined by the following factors:

  • CO2 emissions from your car.
  • Your vehicle’s P11D value (the list price of the car).
  • Your individual tax bracket.

In short, the bigger your vehicle’s CO2 emissions, the higher your workplace car tax. Electric cars pay a 2% business car tax in 2022-23, which is wonderful news whether you’re considering a hybrid lease or an electric car leasing contract.

Can I claim back the VAT on my business lease?

If the company from whom you are leasing a car is VAT registered, you can claim back 50% of the VAT you paid, lowering the overall cost of leasing a car.

It may be possible to reclaim 100 per cent of the VAT on your leasing car, but only if it is used for business reasons rather than private usage, and business use excludes commuting.

How to lease a Car Personally

If you’re looking to lease a vehicle for personal use, personal contract hire (PCH) is quickly becoming a popular option among savvy drivers trying to get the most for their money.

If you choose a personal lease over a limited business lease, you must pay your VAT in full.

You will not be allowed to deduct the personal lease as a business expenditure, but you will not be required to pay BIK tax. It is up to you to choose which option is more cost-effective for you.

Furthermore, if you choose a personal lease, you may recoup your business miles. The current charges are 45p per mile for the first 10,000 miles and 25p beyond that.

Pros and Cons of Leasing a Car

As previously said, both personal and commercial leasing have advantages and disadvantages – it’s all about finding the match.

Here are the main advantages and disadvantages of each to help you decide which choice to pursue in the future.

The Advantages of Leasing a Car Through a Business

• VAT Recoverable – If the vehicle is purely for business use, 100 per cent of VAT is recoverable; otherwise, 50 per cent of VAT is recoverable.

• Write Lease Cost Off As Business Cost – You can deduct your monthly payments as a business expense. However, if the vehicle produces more than 130g/CO2, you will not be able to retrieve 15% of this.

The Disadvantages of Leasing a Car Through a Business

• Company Car Tax – If you lease a car, you must pay company car tax (unless you are a sole trader). By opting for an electric vehicle, you may lower this to 2% by 2022-23.

• Reliant on Company Credit/Finances – If you believe your firm may have financial difficulties in the next years, or if you are a new company, a personal loan may be a better alternative because it is tied to your personal savings rather than a business.

Advantages of Personal Leasing

  • Reclaim Business Mileage – If you drive a personal leasing vehicle, you may still reclaim your business mileage.
  • Keep Work/Life Separate – If you intend to use the vehicle mostly for personal purposes and want to keep your company and personal accounts separate, personal leasing allows you to do so.

Disadvantages of Personal Leasing

• Pay full VAT – Although you do not have to pay corporate car tax, you must pay full VAT.

•Cannot Claim As Business Expenditure – A personal leasing agreement cannot be claimed as a business expense.

What has more taxable benefit?

If you want to lower your carbon footprint and drive a more cheap and ecologically friendly vehicle, leasing through your company would undoubtedly benefit you more.

Reduced CO2 emissions will result in lower corporate car taxes. It is only 2% during 2022-2023.

You may also deduct the company leasing your car as a business cost, something a personal lease does not allow.

If you wanted a diesel or petrol vehicle, you’d have to compare the savings in company expenses against the higher BIK tax you’d pay for a business lease.

Got more questions? Feel free to write to us.

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