Suppose you want to enhance your professional profile or benefit from the tax advantages of business cars. In that case, leasing can be a straightforward and economical way to access high-end vehicles for yourself and your employees.
For entrepreneurs who are sole traders or limited companies, as well as those who are in fixed partnerships and limited Liability Partnerships, a business lease car lets you change your car’s model every couple of years at an affordable monthly fee.
In this article, we’ll detail how business leasing deals for cars are made, how they differ from personal leasing, and how you can cut costs through a lease for a business car.
What exactly is business car leasing?
Instead of purchasing a vehicle for yourself, leasing a business vehicle lets you access brand-new cars with a fixed monthly fee, which is typically spread over one and five years.
Since you’re not paying for everything associated with the car, a company car lease is cheaper than other forms of finance, such as Hire Purchase. Additionally, if you use the vehicle only to travel for work, you are entitled to reclaim 100% of the tax on rental payment and servicing expenses, as well as miles and fuel. Any personal use of the car will decrease the amount of VAT you could claim back.
What is the process for leasing a business vehicle? Operate?
Models and makes available vary depending on the provider; however, whether you require an executive vehicle or a transport van, leasing a business vehicle can help you locate an automobile that meets your needs at a meagre cost per month.
To qualify to be eligible, your company must operate, be able to show solid results and undergo a credit screening to confirm that you can pay the lease’s monthly payments.
At the beginning of your lease, you’ll have to make an initial payment of between 3 and 12 monthly instalments, which are later deducted from the total cost of the lease. This will be called ‘6+23’, meaning you’ll pay 6 months in advance and the rest over 23 equal instalments.
It is also possible to agree on a maximum annual mileage for your vehicle with your supplier, which could vary from 8,000- 40,000 miles per year. If you are more than this number, you’ll be required to pay an extra mile cost, so make sure you’re realistic in your estimate and, in the event of a mishap you’re unsure, allow yourself some breathing space.
Leasing for business vs personal
The most significant difference between commercial vehicle leasing and personal leasing is the possibility of claiming the VAT back from your monthly rental payments and a maintenance charge, which can help you save as much as 20% off the expense of an equivalent vehicle on a personal lease.
But the moment you utilize your car in a mix of personal and business trips. However, you’ll only be able to claim a small portion of the VAT. If your employee uses their car for private motives, they’ll need to pay a tax on benefits-in-kind that is calculated and determined by the price list of the vehicle and the CO2 emission. The lower the emission and the less tax they pay, the less.
Pros and cons, as well as tax advantages
Pros
- Cost-effective: access new vehicles for a minimal monthly cost and claim VAT
- The leasing company absorbs the expense of depreciating the value of your car, which means you won’t be charged.
- Make sure to write it off against your income – it is possible to include your leased car in your balance sheet and then write it off against the profits.
Cons
- Charges if you over the miles, return your vehicle in a damaged condition, or do not maintain it correctly. You’ll be charged.
- The vehicle must be returned to its original condition, and you will not be permitted to change it or label the car in any manner.
Some insurance companies provide ‘complete care’ plans. If not, you’ll have to take responsibility for taking out an appropriate insurance plan. It is important to note that the leasing firm is the owner registered to the car. If you don’t, it may make any claim unenforceable.
The next step
The problem is that new vehicles are costly and could be wiped out by the majority of their initial value in three years. For small businesses with strained margins, leasing cars let you enjoy a brand-new vehicle at a fraction of the price.
Alongside benefiting from the most recent technology and security features, you and your team can present an impressive image on the go and access various vehicles that can meet demands. Make sure you are realistic about the amount of mileage you’re planning to drive and look around for the most affordable price.
