Leasing is an increasingly popular way to get a new car in your parking space. It’s essentially a long-term car loan that lets you keep the car for a few years in exchange for a deposit and monthly payments. In many cases these payments are lower than if you’d decided to buy the car outright through HP finance.
Leasing originated with business car buyers and can make sense if you want to run a fleet of up-to-date company cars. Business car leasing is very similar to personal leasing with a handful of notable exceptions, so read on to learn more about how it works, who can benefit from it and whether it’s the right choice for your business.
Why lease a car through my business?
If your business regularly requires you to travel or transport items, you might want to run a company car or, if you manage a number of employees, a fleet of cars. You could buy those cars outright but that has large up-front costs and leaves you with depreciating assets.
You could, however, choose to lease those cars instead. This means you’ll pay a non-refundable deposit and monthly payments on them. At the end of the lease, you return them and can swap them out for new versions with new lease agreements.
Your lease payments will often be lower than the finance payments if you’d bought the car on finance, because you’re only funding the depreciation over the time you use it rather than the whole value of the vehicle. What’s more, leasing companies get bigger discounts than private buyers by buying in bulk from car manufacturers – the savings they make can translate into lower monthly payments for leasing customers.
How do I set up a business car lease?
A business car lease works almost exactly the same way as a personal lease. You select a car – either by getting a deal through carwow or by visiting a dealer directly – then agree the terms of the agreement with the dealer on behalf of the leasing company. Your deal will have an initial payment that’s usually equivalent to a few month’s payments, and then monthly payments over the remaining period – often between two and four years.
Once the lease deal ends, you return the car to the leasing company – typically by an arranged collection. You can then walk away or arrange another deal. You will have an agreed mileage in your lease contract and, if you’ve gone over it, you’ll have to pay an excess mileage charge. You’ll also have to pay for any damage that goes beyond what the leasing company defines as fair wear and tear.
Will I have to pay BIK on a leased business car?
You won’t have to pay BIK (Benefit in Kind) tax on a car leased through a business unless it’s used for personal driving or commuting. This also applies to ‘pool’ cars that are parked overnight at the company and can be used by anyone who works there – if this is the case, you or your employer will have to notify HMRC of the car’s status.
If you or one of your employees want to use your leased business car for personal driving and commuting, you’ll have to pay BIK tax like any other company car user. You can’t claim any of the VAT back on your business car if you use it for personal use but you can claim back the cost of your monthly payments against profits.
Pros of business car leasing
If the car is used solely for business purposes and not for personal driving or commuting, you can claim on any maintenance agreements you set up. You may also find that leasing companies offer slightly better lease deals to business customers than personal ones especially if purchasing multiple cars.
Another benefit of business car leasing is the fact that your money isn’t tied up in an asset that’s losing value, as it would be had you bought the car. If you run a fleet of the newest models, they won’t cost you huge sums in unexpected maintenance and they tend to be more efficient, too.
Cons of business car leasing
Many of the downsides that affect personal leasing are the same for business leasing. While there’s a benefit to not owning the car, you also won’t have anything to show for your monthly payments once the agreement ends, whereas you could buy a car outright and use it for many years until it breaks or you sell it on.
You also have to bear in mind the mileage you cover because you could get stung with a large bill if you go over the agreed distance. You’ll also need to make sure you keep the car in good condition because you’ll have to pay for any repairs above fair wear and tear that the leasing company needs to make once the car is returned.
Business car leasing vs personal car leasing
If you’re presented with the option to lease a car personally or through your business, it’s worth considering which way will leave you better off. Businesses may be able to claim back a portion of the VAT on their monthly payments and all the VAT on their maintenance packages, provided the car is only used for business purposes.
Personal lease deals can be more beneficial if you mainly drive your car for personal use and only occasionally for business, however. Typically, road tax will be included in your personal lease deal and you won’t have to pay any BIK tax which can ease the strain on your monthly budget. BIK rates are affected by a car’s fuel efficiency so, if you have your heart set on a performance model, you might end up paying more BIK alone than the personal lease cost.
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