Benefits of Business Car Leasing

What is a business car lease?

A business car lease or Business Contract Hire (BCH) is a type of car finance in which you lease a vehicle for a set period, paying monthly instalments. When the agreement ends, you hand back the vehicle.

This is a similar setup to a personal car lease agreement. However, in business leasing, the car is leased through a company.

For further information on this type of lease, check out our business leasing explained guide.

Top eight benefits of business leasing

Here are the eight key benefits of business car leasing.

1. Improved cash flow

Buying a car outright can see your cash flow take a big hit. On the balance sheet, this would stand out as a large liability and could also affect your ability to secure more lines of credit if needed.

However, leasing a car often requires far less money to be spent upfront and allows you to budget for a fixed cost across a pre-agreed period of time.

This means not only will the balance sheet look healthier, but your cash flow will not be stretched by paying out tens of thousands of pounds. It frees up the money that would’ve been spent on buying the car to be used on other important areas of the business to help it grow.

2. All motoring costs are in one place

Taking out a business lease means paying one fixed monthly cost for your fleet. Business leases cover the cost of the car and road tax. For an additional charge, you can also get maintenance, insurance and breakdown cover to complete the package.

This helps to manage cash flow and budgeting better and covers all your motoring needs under one charge.

3. Avoid spending money on a depreciating vehicle

Finding the money needed to pay for a brand-new car can be difficult enough. But it’s even more disconcerting that the value of the vehicle will only ever go down, which means when you come to sell it, you never reclaim its real worth.

The money you pay each month for a business car lease factors in the depreciation of the vehicle for the duration of the contract. This is why it can be cheaper than buying. Plus, the fixed cost you are paying is a fair reflection of the asset you receive.

Once the contract is over, you can simply walk away or order a new lease car without the stress of dealing with selling and recouping your money. Again, this avoids any risk of negative equity.

4. Access the latest car safety technology

If you can’t afford to buy a business vehicle outright, you may be tempted to look for a second-hand car as an alternative. In terms of cost, this can have advantages depending on how much you can afford, but you may not be able to provide a car to staff members that include the latest safety features.

A new car is more likely to have extra safety features than an older vehicle, plus all lease cars come with a manufacturer’s warranty, too, for extra peace of mind.

5. Access electric cars and save money

When it comes to business leasing, due to the lower costs, you are more likely to be able to afford a better car with a more reasonable fuel economy and even zero emissions.

There are several electric business car benefits. For example, with the current fuel cost in the UK, an energy-efficient or eco-friendly vehicle such as an electric car should save a substantial amount of money for the business compared to a used car. Not only that, but an economical car typically has lower CO2 commissions, which could provide the company with further tax advantages.

6. Save money when compared to personal leasing

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 tax for 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 used to claim back tax if you can prove the car is used purely for the business and left on the company premises overnight and at weekends.

7. Reclaim costs through corporation tax

Limited companies are able to offset up to 100% of the payments and VAT against their corporation tax if used solely for business purposes. In addition, by taking out a maintenance package with a company car, you can claim everything back on that too.

When it comes to car emissions, any car you lease that releases less than 110g/km allows you to claim back 100% against your income. Cars emitting 111g/km or more are able to claim 85%. If you have leased a van instead of a car, then you can claim 100% regardless of the emission rate.

Learn more about how leasing is tax deductible and find out if your company could save even more.

8. Provide a staff perk

Providing a company car is a great way to improve the benefits package for your employees. Business leasing is an easy way to manage this perk, and the benefit your employees receive incurs a Benefit in Kind tax.

This tax amount depends on the car model and emissions value, and HMRC determines the rates. But, opting for a zero or low-emissions car comes at a lower tax rate and could be a handy benefit for eligible staff.

Read more about Benefit in Kind tax.

Considerations of business leasing

Business leasing has several benefits. However, there are a few considerations to make before choosing this type of lease. These include:

1. Business leasing has mileage limits

Business leases come with annual mileage allowances, which are agreed upon at the start of your contract. It's important to gauge how much you'll need at this point, as going over will incur excess mileage charges.

If you feel you're likely to go over your allowance during your contract, there is an option to increase it. Speak with your Account Manager for details.

2. Your business doesn't own the vehicle

With this agreement, you must return the vehicle at the end of the contract. So, you'll never actually own the car or van during the contract.

This is a benefit if you want to upgrade regularly, as there are no hassles about selling the vehicle once the agreement has ended. However, other finance options may be suitable if you want to own the car outright.

3. You're subject to fair wear and tear charges

Every business lease has a fair wear and tear policy. This covers general wear and tear expected over the duration of the contract. For example, minor scratches or marks are generally allowed. However, you'll be liable for the repair charges if there is excessive damage to the vehicle.

4. It can be costly to end a contract early

It is possible to end a business lease early. But this will incur a charge and often depends on how much of the lease is left to pay. This differs depending on the circumstances, so speaking with your Account Manager is advisable.

Tax benefits of leasing a car for business

There are several tax benefits for leasing a vehicle for business use, including:

• Lease cars do not appear on the balance sheet, which helps to make the bottom line look healthier. There are also no depreciation calculations to worry about
• Businesses can claim back 100% of VAT on payments if the vehicle is used only for business purposes. If it's used for personal journeys, this drops to 50%. You have to be VAT-registered to get this perk
• Up to 100% of the costs of your lease can be offset against your tax bill, depending on the emissions. If you have lease vans, this is 100%, no matter the emissions value
• Maintenance packages and excess mileage charges are eligible for 100% VAT back and can be claimed against your tax bill

Are business car lease payments tax deductible?

Yes, you can offset your monthly instalments against corporation tax if you are a Limited Company. However, the amount is determined by the lease car emissions. Vans are 100% tax-deductible regardless of the emissions.

Learn more about tax benefits in our business lease tax guide.

Electric car business lease benefits

Electric cars and vans provide a cost-effective way to upgrade your fleet. Here are some of the main benefits if you're considering the transition to greener business motoring:

1. You can claim 50% of VAT back on monthly payments and 100% if the car is used solely for business purposes
2. Monthly payments are tax deductible against your corporation tax
3. Employees enjoy a low Benefit in Kind tax rate for electric cars. The current rate is 2% up to 2025
4. Electric cars typically cost less to run than standard petrol and diesel cars, saving you costs in fuel
5. You have access to the latest technology and safety features for your fleet
6. Eligible businesses can take advantage of the Electric Vehicle Chargepoint Grant towards the costs of installing EV chargers at workplaces
7. Employees can claim 9p per business mile if they have charged the vehicle at home*
8. Contributes to greener company branding and reputation

*Advisory fuel rates may change.

Check out more electric business lease benefits to help you make the right choice for your company fleet needs.