Business Car Leasing Explained

What is business car leasing?

Business car leasing or Business Contract Hire (BCH) is similar to a personal lease in which you hire a vehicle for a fixed period and pay monthly instalments. At the end of the lease, you give the car back with no worries about selling and depreciation.

However, with this type of leasing, the vehicle is contracted under your company name whether you're a limited organisation, public company, partnership, or sole trader.

Types of business car leasing

With business car leasing, you agree to a fixed monthly cost over a specific period and give the car back at the end of the contract. However, unlike Business Contract Purchase (BCP) and Business Lease Purchase (BLP), there is no option to buy the vehicle.

There are several types of business car leasing, including:

Business Contract Hire (BCH)

Business contract hire is a business lease agreement suitable for a range of companies, such as sole traders, partnerships and limited companies who don't want to own the vehicle at the end of the contract.

Self-employed BCH

Similar to standard business contract hire, self-employed BCH works in the same way but is tailored to sole traders and self-employed individuals. For more information, check out our guide to self-employed car leases.

How does business car leasing work?

If you're wondering, 'How does business car leasing work?' let's dive into it. At Leasing Options, our team of experts are available to help from start to finish, and you get a dedicated Account Manager to handle any questions. Here's what to expect when you lease a business vehicle.

1. Select your preferred car – Search our stock and choose your preferred vehicle.
2. Get a quote – Once you’ve decided on the term, mileage and extras, request a quote.
3. Apply for finance – Complete a finance proposal form, and our team will help you get the best contract based on a credit check and circumstances.
4. Sign the documents – Once finance is in place, sign to complete the contract.
5. Arrange delivery – Your account manager will arrange delivery at a suitable time. If the car is not in stock, you will receive an approximate date with details on when it will arrive.

Check out our guide on taking out a business lease for more information.

How to find the right business lease

Business leases are an ideal way to get the best company cars at an affordable monthly cost. However, there are a few considerations to bear in mind, including:

• Pick the best vehicle for your needs: Consider the most fuel-efficient models to reduce running costs or think about switching to an electric fleet for more cost savings. Take a look at the latest business lease special offers for more details.
• Consider the initial payment: This first rental payment is flexible, but the more you pay, the less monthly instalments will be.
• Estimate your expected mileage: Calculate how much your business will use per vehicle to avoid any excess mileage fees.
• Consider a maintenance package: Adding a maintenance package to your lease means you get servicing, repairs, and general maintenance included.
• Costs of ending the contract early: If you decide to end a business lease, there are charges to pay.
• Wear and tear policy: Every lease includes a fair wear and tear policy, and any damage over this will incur a fee.

Who can take out a business lease?

Most organisations can take out a business lease no matter how long they've been trading. These include:

• Limited Companies (Ltd)
• Public Limited Companies (PLC)
• Self-employed/sole trader
• Partnership
• Limited Liability Partnership (LLP)
• VAT-registered and non-VAT-registered companies
• Charities
• Embassies

In most cases, businesses must have a good or excellent credit score. However, business leasing with bad credit is possible.

Business leasing benefits

There are several business leasing benefits, such as:

1. Motoring costs in one place

In a business lease, you pay fixed monthly costs, which include road tax. You can also select a maintenance package, placing car costs under one monthly instalment.

2. Improved cash flow management

Instead of spending a sizeable one-off amount on company vehicles, leasing helps spread the cost for improved cash flow and budget management.

3. Access to the latest models

Leasing gives you the option of regular upgrades, giving you access to new technology and safety systems.

4. Go green with ease

There are plenty of electric models to choose from, making the process of going green simple.

5. VAT savings

If your business is VAT-registered, you can claim 50% VAT back on your initial and monthly costs. This rises to 100% of the vehicle is purely used for business purposes.

Explore more in our guide on the benefits of business car leasing!

Business leasing considerations

Alongside the benefits, there are a few considerations to ensure this type of lease meets your needs:

Some factors to think about include:

• Mileage – Calculate your business mileage accurately to avoid excess charges at the end of the contract
• The business doesn't own the vehicle – At the end of the agreement, you hand the car back
• Fair wear and tear – Every lease car is subject to a fair wear and tear policy. Anything over the normal wear and tear is subject to charges
• Ending the contract early – If you need to end a business lease early, charges are applicable, which can sometimes be costly

How does business leasing work with tax?

Fortunately, business car leasing offers several tax benefits, including:

• Road tax is included in your lease agreement, so you don't have to worry about a separate payment.
• As you’re not buying a car outright, a lease car doesn't appear on the balance sheet, and there are no depreciation costs to calculate.
• If you use a company car solely for business, you can claim 100% of the VAT back on payments. If there's an element of personal use, this drops to 50%.
• Leasing is tax deductible, so up to 100% of monthly payments, including the initial rental, can be offset against your corporation tax bill (limited companies only and depending on emissions). If you have company vans, 100% can be claimed, whatever the emissions level.
• If you opt for a maintenance package or are charged excess mileage fees, you can claim 100% VAT back, plus costs can be offset against your tax bill.
• BiK with business leasing is subject to emissions levels. But the lower the emissions, the lower the rate, so your employees will be paying less.

Check out our company car tax guide for more information

What are the differences between a business and a personal lease?

When it comes to business vs personal leasing, here are the key differences:

1. Usage: Business leases are, as expected, used for business purposes. However, you can also use your car for personal use (subject to company car tax). With personal leasing, you can drive your car to and from work, but it can't be used for business reasons.
2. Name on contract: If you opt for a business lease, the contract sits under the company name. In a personal lease, this is under an individual's name.
3. VAT savings and tax benefits: If you're VAT-registered, you can claim up to 100% of the VAT back and offset payments against your tax bill. However, personal leases do not have this option.

How does business leasing insurance work?

Business lease cars must have a fully comprehensive insurance policy. Your company can arrange this, or there's the option of an insured lease agreement.

With the insured lease option such as our Fuel & Go package. This includes fully comprehensive cover, maintenance, breakdown cover and accident management. It also covers family, spouse and other company employee use (as long as they meet the driver criteria).

The additional cost of this package can be offset against tax alongside your monthly payments.

Do I need to maintain a business car?

Yes, you are responsible for ensuring your lease car is in good condition and works as it should throughout the agreement. In addition, servicing and maintenance must be carried out per the manufacturer's recommendations.

At the end of the lease, it's also subject to a fair wear and tear policy, and anything over the general usage wear is invoiced to your company to rectify.

If you want to take the hassle out of upkeep, choosing a maintenance package is a great option. This small additional cost includes all your required servicing and maintenance needs and covers repair work where needed.

What happens at the end of a business lease?

Returning your company cars at the end of a lease is straightforward. Here’s how the hassle-free process works:

Prepare for the end of the lease

• Make sure the car is clean, and remove any company belongings.
• Inspect the car for damage and check nothing has been removed, such as the parcel shelf or spare tyre.
• Ensure you have the paperwork for the vehicle, such as the V5, service handbook, and vehicle handbook.

Arrange collection

Contact your account manager to arrange the collection of the vehicle. This can be done at a time to suit your business, but generally, collection is Monday to Friday between 8 am and 6 pm.

Vehicle inspection and collection

When the collector arrives, they will inspect the vehicle according to the BVLRA fair wear and tear standards. This checks for any substantial damage and ensures the car is in the best condition possible with average usage wear. Once they have filed their report, you can see a copy and sign to say you’re happy with it. The vehicle is then taken away, and further inspection is carried out.

Any excess damage incurred will be invoiced and needs to be paid in full before the contract can be signed off and ended.

Renewals

If you want to upgrade your vehicle with us, you can start the renewal process at a similar time to your current contract ending. This way, you will have a new car ready to go once the previous one is collected.

Business leasing FAQs

Below we cover the most commonly asked questions about business leasing.

Why is a business lease cheaper than personal leasing?

Is a business lease worth it?

Can I lease a car if I'm self-employed?

Can a new business lease a car?

Are business lease payments tax deductible?

Can I buy the car at the end of a business lease?

What information do I need for a business lease?

What is the benefit in kind (BiK), and how does it affect a business lease?

Can a business lease be used for personal driving?

Can I lease a business fleet?