Why is business leasing cheaper than personal?
Thinking of leasing a car for your business or wondering why it’s cheaper than personal leasing? Read this guide for everything you need to know.
What Is Business Car Leasing?
A BCH (Business Contract Hire) is a vehicle lease contracted through your limited company, partnership or LLP, or as a sole trader.
The set-up is usually the same as with Personal Contract Hire (PCH), consisting of an initial payment then monthly instalments following that.
At the end of your contractual term, the car is handed back to the leasing company.
What Is the Difference Between Business and Personal Leasing?
Business leasing is leasing under your business’ name, and personal is simply leasing it under your own name.
A business lease vehicle will, of course, be used for business purposes, but can also be driven for personal use. (This does have tax implications – see the heading on Company Car Tax). With personal leasing, you can use your car however you like (within your agreed mileage) including commuting to a place of work.
Whether you want to business lease or personal lease – you will have access to the same range of cars and have the same flexibility in terms of deposits and monthly re-payments.
Why Is Business Leasing Cheaper Than Personal?
The short answer is – VAT!
BCH leases are advertised with 50% of the VAT knocked off the price – on a business lease you can claim this back (as long as your company is VAT registered).
Personal lease deals, on the other hand, are always advertised including the full cost of VAT, because it is unrecoverable.
Can I Lease a Car Through My Business?
Yes! All you need to provide is your company’s bank statements and audited accounts (usually three months in arrears), the company’s proof of registered address and ID for the main company director.
These are the BCH equivalent of the photo ID and proof of home address you would provide if signing a personal lease.
Can I Lease A Car If I’m Self Employed?
Yes, absolutely!
You can lease a car if you’re any of the following (not exhaustive):
- A Limited company
- VAT registered
- Limited. Liability Partnership
- Self Employed
You will need to provide some documents as part of the process. These include:
- Proof of ID
- Proof of address
- Last three months bank statements
- Last full set of trading accounts
Do I Need Business Car Insurance?
On a BCH you will need to talk to your insurance provider about a policy that includes business usage. Alternatively, you can simply take out an inclusive lease, such as Fuel & Go with Leasing Options, and you will be covered for both business and personal use – all in one monthly payment.
If you wish to hire a fleet of vehicles under a BCH, fleet insurance is also an option (see our heading below on Fleet Vehicles).
What Are the Pros and Cons of Business Leasing?
Business car leasing is a popular choice for companies and their employees because of cost-savings, tax benefits and the advantage of driving a new car every few years.
If you’re weighing up whether to lease a car for your company here are some benefits of business leasing.
Pros Of Business Leasing
Company rather than personal car tax, which is likely to be cheaper!
Securing a business lease deal is usually a cheaper option than a personal lease. This is because of the VAT breaks that are available.
First and foremost, you must be VAT registered to be able to take advantage of these perks. If you are, this means you can claim back at least 50% of your initial and monthly costs. This concession is based on the assumption the car will be driven equally for personal and business use.
100% can be claimed back if you can prove the car is used purely for the business and left on the company premises overnight and at weekends.
If maintenance is included in your deal, all the VAT can be claimed back
By taking out a maintenance package with a company car, you can claim everything back on that too. Learn more about leasing with maintenance and find out if your company could save even more.
Work mileage
When you take out a business car lease, you agree to a mileage allowance. If this is exceeded, you will be asked to pay an excess mileage charge to the leasing company – though, at Leasing Options, it could be as little as 5p per extra mile.
Cons of Business Leasing
Less fuel-efficient cars
Company Car tax can be higher when leasing a less fuel-efficient vehicle – but this is simply an incentive to choose a car that’s better for the planet!
What is Company Car Tax?
If you want to use a car leased on a business contract to commute to and from work, or for any other personal reasons, you will have to pay Company Car tax. This is because receipt and use of a company car is seen as a Benefit in Kind.
Company car tax is now referred to as Benefit In Kind.
How is Company Car Tax (Benefit In Kind) Calculated?
If you're lucky enough to be supplied with a company car then you could be liable to pay a charge known as Benefit in Kind (BIK) tax. The amount you're required to pay will depend on three things:
- Price of your vehicle (P11D value)
- Your annual earnings
- CO2 emissions of the vehicle
As with all taxes, the rules change often.
It’s important to know that the smallest change to the options on a vehicle, even something as seemingly insignificant as adding mats, can impact the amount of tax that needs to be paid. If you're in any doubt about the rate that will apply to your chosen vehicle, be sure to get in touch with HMRC to confirm.
How is BIK tax calculated?
BIK tax is calculated by using your car’s P11D value and its BIK tax band. If you don't know these, use the HMRC tax calculator to work out how much you will pay on a company car.
For example, an Audi A4 with a P11D value of £30,000 and emissions of 130g/km would have a BIK tax band of 25%. The BIK would be 25% of £30,000 (£7,500) and this would be charged at the marginal rate of tax – either 20% or 40%, making the annual charge £1,500 or £3,000 respectively.
| Value of Car | BIK Tax Band | BIK | Annual Charge 20% | Annual Charge 40% |
| £30,000 | 25% | £7,500 | £1,500 | £3,000 |
What affects BIK?
Different factors can affect BIK tax, such as your fuel choice and your mileage. If you aren’t sure how much you should pay, use the HMRC calculator.
BIK tax for vans
Tax on your van depends on whether you use it purely for business or for both business and personal reasons.
If you are an employee and regularly use your van for private use, then you must pay BIK tax.
Vans currently have a flat rate of BIK which is £3,430. If your company also pays for your fuel, usually with a fuel card, there is an additional BIK standard value of £655. Zero emission vans pay 60% of the rate, meaning an employee is liable to pay £2,058.
Employees also pay a percentage of the BIK value based on their own personal tax obligations. If you pay 20% tax, you pay 20% of the BIK value. The standard tax payable on a van is, therefore, £686 which is just £57.17 per month. The same applies to the fuel benefit tax and for zero emission vehicles.
BIK tax for electric cars and hybrids
The Government introduced new BIK savings on efficient battery electric cars and plug-in hybrids from 6th April 2020 in a bid to increase the uptake of fully electric cars among fleets.
Company car drivers will now pay 0% tax on pure electric vehicles (EVs) throughout 2020/21.
Find your next company car
Are you ready to discover your perfect company car? Take a look at our business lease deals. Or if you’d prefer an option that won’t affect your tax liabilities, check out personal car leasing.
Our information is correct at the time of writing, but always consult HMRC or a tax specialist relevant to your individual needs.
What is a Pool Car?
A Pool car is a car that is kept at a place of work, even after business hours. Pool cars are therefore exempt from company car tax because they aren’t used for commuting or any personal journeys.
What is a Fleet Vehicle?
A fleet vehicle is a vehicle owned by a leasing company and then leased to another business as part of their new/existing fleet of vehicle(s). Fleet leasing allows a business/organisation to use many vehicles for a set lease period with monthly payments.
Whose Name Does a Business Lease Go Under?
A business lease application should be submitted in the name of the entity that will be hiring the vehicle and responsible for the payments. For example, your limited company or partnership. If your business is not incorporated, the lease should be in the name of the proprietor, who will be responsible for the payments and all other responsibilities under the terms and conditions of the agreement.
Can I Claim Back Business Mileage on a PCH Deal?
Yes, you certainly can.
A driver can claim up to 45 pence per mile (for the first 10,000 Business Miles) and then 25 ppm (for every Business Mile over that) if they use their own car for business use.
If you have any further questions relating to any aspect of Business Leasing then check out our range of informative guides here or get in touch with one of our experts here (insert hyperlink) who would be happy to help
