Business car lease vs personal car lease

If you’re leasing a car, you’ll face the choice of a business vs personal car lease. While they might seem similar at first, there are key differences – from monthly costs to tax benefits – that can make one option more suitable than the other. This guide gives you the full low-down on everything you need to know to make the right choice.

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How does business car leasing work?

Business car leasing, also called Business Contract Hire (BCH), is similar to personal leasing, but the car is leased by a company rather than an individual. A VAT-registered company can lease a car for one to five years, and employees can use it for both business and personal purposes.

In order to qualify for a business car lease, you need to be one of the following:

• Limited companies or private limited companies
• Sole traders
• VAT-registered companies
• Limited liability partnerships
• Partnerships

Lease terms and payments

• A down payment is required upfront, usually expressed as multiples of the monthly rental (e.g., a “6+23” deal means six months’ payment upfront, followed by 23 monthly payments).
• The lease covers a fixed period, typically one to five years.

Usage and mileage

• Business leases often allow higher annual mileage than personal leases, sometimes up to 40,000 miles, depending on the deal.
• Exceeding the mileage limit or returning the car with damage can result in extra charges, which the company may pay or pass on to the employee.

How does personal car leasing work?

Personal car leasing (also known as Personal Contract Hire or PCH) is a way to drive a new car for a fixed period without owning it. You pay an initial upfront amount followed by fixed monthly payments, usually over two or three years.

The lease includes a mileage limit, and you may be charged if you exceed it. You’re also responsible for keeping the car in good condition, as you’ll pay for any damage beyond normal wear and tear.

At the end of the agreement, you return the car to the leasing company, which remains the owner throughout.

What is the difference between business leasing and personal leasing?

The premise of business car leasing and personal car leasing is fairly similar. Both involve an initial deposit, followed by fixed monthly payments, before returning the car at the end of the agreement.

The main difference is who the lease is for. Personal Contract Hire (PCH) is designed for individuals, while Business Contract Hire (BCH) is for companies leasing vehicles for business use.

There are also financial differences. With BCH, businesses can often reclaim some or all of the VAT and may benefit from other tax efficiencies, whereas this is not available with PCH.

The application process also differs, as PCH requires personal financial details, while BCH is based on the company’s financial information.

Business car lease vs personal car lease cost

Here’s a brief comparison of the costs between a business car lease and a personal car lease:

Features	Business car lease	Personal car lease
Monthly payments	Can be cheaper because your business can write them off as a business expense.	Paid from your own money, no tax savings.
VAT	Businesses may get some tax back, lowering costs.	Included in payments, no reclaim.
Running costs	Fuel and maintenance paid by the business can save money.	Fuel and maintenance paid by the business can save money.
Other	If you drive the car personally, you may pay extra tax (called Benefit-in-Kind).	No business rules or extra taxes for personal use.

Which type of car lease is better?

The better type of car lease depends on how you plan to use the vehicle: a business lease is better for work purposes, while a personal lease is better for private use.

If you qualify for a business car lease, it’s worth considering because you may be able to claim back VAT and other tax benefits, which can reduce overall costs. Although you’ll need to keep records of your mileage, you won’t be investing in a depreciating asset since you return the car at the end of the lease.

On the other hand, if the car is for personal use only, a personal lease is more suitable. You won’t be able to claim VAT back anyway, and it avoids the extra administrative work, such as tracking mileage.

Business car lease vs personal car lease FAQs

Why is a business lease cheaper than a personal lease?

Business lease deals are usually cheaper than personal leases because VAT-registered companies can reclaim some or all of the VAT on the monthly payments. If the car is used only for business, 100% of the VAT can be claimed back; if there’s personal use, typically 50% can be reclaimed.

In contrast, personal lease (PCH) prices always include VAT with no option to reclaim it, making them more expensive overall.

Is it better to lease a car through business or personal?

If you’re a business owner or sourcing a car through a company, a business lease is usually better because you can reclaim some or all of the VAT, especially if the car is used solely for business purposes. Even if there’s some personal use, you can still reclaim 50% of the VAT, which can make it cheaper than a personal lease.

On the other hand, if you’re arranging a car for personal use outside of work, then a personal lease is the only option. Business leases are only available through a company.

Can I claim a personal car lease as a business expense?

Yes, you may be able to claim a personal car lease as a business expense, but only for the portion of the car’s use that is for business purposes. Make sure your lease and insurance allow business use, and keep detailed records of business versus personal mileage to calculate the deductible amount accurately.

Can you change a personal car lease to business?

No, you generally cannot change a personal car lease into a business lease. Personal and business leases are separate contracts with different terms and tax rules. While some leases allow a ‘novation’ to transfer between businesses, this does not apply to converting a personal lease into a business lease.

Can anyone drive a business lease car?

Not just anyone can drive a business lease car. Drivers must be covered by insurance, and the person named on the lease must give permission for others to use it. Multiple insured drivers can use the same car if authorised.

Do you have to pay VAT on a business car lease?

Yes, VAT is charged on a business car lease. However, if the car is used solely for business purposes, you can reclaim 100% of the VAT. If there is some personal use, you can usually reclaim only 50% of the VAT.

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Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.

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