How does business car leasing work?

Business car leasing is very similar to personal leasing. It’s a convenient and cost-effective way to drive a brand-new car without the hassle or upfront expense of buying one outright.

Like personal contract hire (PCH), with a business lease deal you lease a car for an agreed period of time, pay a fixed monthly fee, and simply return the vehicle to the finance company once your lease period has ended.

The main difference is that business vehicle leasing offers additional financial benefits with companies able to reclaim up to 100% of VAT, and the option to offset the monthly payments against their corporation tax bill.

We’ve written a general guide to How Car Leasing Works, but read on to learn everything there is to know about Business Car Leasing, including how it works, the benefits, and how Leap Vehicle Leasing can help you find the best business lease deals.

Three things to know:

  • Business car leasing is usually cheaper than personal leasing because you can reclaim up to 100% of the VAT.
  • Choose an eco-friendly car with low emissions to offset your business car lease costs as a business expense.
  • Businesses that qualify for company car leasing include: sole traders, LLPs, Ltds, PLCs and more.

What is business car leasing?

Business car leasing (also known as Business Contract Hire or BCH) is a financial contract where a company leases one or multiple vehicles for a set period of time.

It offers businesses the equivalent of a long-term car rental, with lower up-front costs and significant tax deductions for VAT registered companies. 

Businesses can offer employees a brand-new company car at a fraction of the price of purchasing one outright.

The leased vehicles can be driven for both business and personal use, and the hassle-free returns at the end of the lease period make business leasing very convenient.

How does business car leasing work?

Business car leasing works in a very similar way to personal contract hires (PCH). The first step is to choose your car. At Leap Vehicle Leasing, we have a huge variety of vehicles to choose from, including spacious SUVs, sleek saloons and comfortable city cars.

Speak to one of our sales team today to discuss your options, including colour and trim level. We will then work out the terms and conditions of your business lease deal – such as the car’s yearly mileage limit – and agree the price. This will include your initial payment and the fixed monthly fees to follow.

Once your business has been approved by the finance company, you’ll sign the contract, pay the initial fee, and we’ll arrange for your car to be delivered to your address (free of charge).

Look after your car, and at the end of your business lease period you’ll be able to simply hand your keys back and walk away.

Who can take out a business lease deal?

To qualify for a business car lease, you must be one of the following:

  • Sole trader (with a bank account in the sole trading name)
  • Partnership (with two or more partners in the business)
  • Limited Liability Partnership (LLP)
  • Public Limited Company (PLC)
  • Private Limited Company (Ltd.)
  • Local authority (health services, social services, education etc.)
  • VAT registered business
  • Charity
  • Embassy

Can a new business lease a car?

A new business may be able to take out a business car lease if it has good credit and can prove to the financial lender that the company can afford the monthly fees.

Some finance companies will request proof that the business has been running for at least two years. If you’ve been trading for less than two years, however, you may still be able to get a business lease deal as long as you provide further supporting documents or guarantees. This might include:

  • Extensive company bank statements
  • Personal credit reports for directors or company owners
  • A director agreeing to act as guarantor

What are the benefits of business car leasing?

Business car leasing offers many benefits for both companies and their employees. These include:

  • Cheaper upfront costs – The initial payment for a business lease deal is always lower than the price of buying outright.
  • Brand new cars – Drive a smart and shiny new car that’s stuffed with all the latest technology and safety updates.
  • Don’t worry about depreciation – The depreciating value of your business lease car is reflected in your monthly fee.
  • Convenience – Simply walk away from your lease vehicle at the end of your agreed period.
  • Reclaim corporation tax – VAT registered companies can reclaim up to 100% of the VAT on their monthly business lease payments. 
  • Eco-friendly – Choose a hybrid or all-electric vehicle for a fuel-efficient car lease that will reduce your company’s CO2 emissions and offer further tax reductions.

Is a business car lease tax deductible?

Yes. Depending on the type of car you choose, your business may be able to offset the lease payments as a business expense on their corporation tax.

Cars with emissions lower than 110g/km allow you to claim back 100% against your business leasing costs. Cars emitting 111g/km or more are able to claim 85%.

VAT registered companies can also reclaim up to 100% of the VAT on their business car lease, depending on the vehicle usage. If the car is kept at the business premises and used solely for business purposes, this must be carefully logged so that the company can claim the full 100% VAT.

Otherwise, if the vehicle is used for any private journeys, the business will only be able to reclaim 50% of the VAT.

Things to consider about business leasing

Business car leasing offers many financial benefits for companies, but it’s worth noting that if you are offering lease cars to employees, the business will have to pay higher national insurance contributions (NIC).

Additionally, if a lease car is intended for both business and personal use, HMRC will consider it an employment bonus and the employee will have to pay Benefit-in-Kind (BiK), deductible from their salary or wages.

The amount of company NIC and employee tax payable will depend on the value and CO2 emissions of the business lease car.

Find your next business car lease with Leap Vehicle Leasing

Contact our friendly team today to receive further advice on business car leasing. We can talk you through the options available and help you find the perfect car for your business needs.

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