Should you lease your car personally or through your business?

14th May 2021

Should you lease your car personally or through your business?

If you need to get yourself or your sales staff on the road in a quality set of wheels, then leasing a car is an ideal way to go about it. Short term, long term the process is pretty simple, as long as you can keep up your payments up you can have a high quality car at your disposal whenever your business needs demand it. No need to worry about depreciation, cost of the vehicle and with the right package even servicing and maintenance. When the terms of the lease is up, simply return it or if your particularly enamoured with it then pay the fee to keep it.

The biggest challenge to consider for a lot of business owners is whether to lease the car personally or through your business. Choosing incorrectly can be a costly mistake and could result in someone paying more tax than they need. There is no right and wrong answer however it depends, ultimately on the situation that’s right for each person as taking either approach has limitations and benefits.

To make matters easier, we’ve delved a little bit into the factors that determine how you should lease your car personally or professionally.

The Basics

In simple terms there are two options when it comes to leasing your vehicle, either:

  • Lease through your Limited Company i.e. lease your car and your business pays for it.
  • Lease your vehicle personally, the car is paid for by yourself and has nothing to do with your business.

While this all appears relatively straight forward there are details in each approach that should determine which approach you should take.

Leasing through your business

If your business is a limited company, then you are able to unlock a few benefits by leasing your vehicle this way.

  • You will probably find it easier to get a better lease deal, either on the type of vehicle you want, the price you are looking for or the terms you require.
  • While payment of company car tax is still required it is possible to pay less than personal car tax.
  • If you use trucks or vans, then you pay a fixed rate.

Company Car Tax

If you’re using your business to pay for your vehicle lease and you use it for personal journeys, then you will be required to pay company car tax. This includes your commute! The amount of car tax payable is determined by the following factors.

  • Your tax bracket.
  • The book value of the car in total as submitted on your P11D. This is not just the value of the car; it includes any optional extras you may have added and delivery costs.
  • The emissions of your car.

CO2 emissions will play a huge factor in determining the amount of car tax you will be required to pay. The more CO2 emissions from your car the higher the amount of car tax you have to pay. You can however reduce the amount of tax owed by only using the vehicle part-time and restricted to work / business journeys. Similarly, if you contribute towards the costs of the car then you can reduce the amount of tax owed.

The government and particularly major cities are cracking down on other emissions from non-CO2 sources particularly those coming from diesel vehicles. If you have the option to choose between the two fuel types on vehicles you are interested, then think carefully about which vehicles you lease.

Company car tax is unavoidable, it is something you have to pay and an unfortunate fact of life. However, lease payments made towards a vehicle are deductible from your corporation tax so there are opportunities for some savings. The Inland Revenue is famously fussy about this however and this needs to be assessed correctly to avoid paying over the odds. We would recommend consulting your accountant/financial advisor before committing. Short term leases work very well for this.

Vans or Pickups

If your company uses a van or pickup then your company car tax is calculated slightly differently than if you were leasing a car. This is usually done on a fixed rate basis rather than the list of factors above. Currently there is considered a Benefit in Kind amount for the van and you pay your individual tax bracket on the amount of benefit in kind received. This amount has been £3170, so if you pay 20% tax then you will pay £634 per annum or at 40% £1268 per annum.

If you can find a way for your business to use a van then this is a particularly nifty option as it often works out significantly less than if you lease a car.

VAT

If your business is VAT registered, then you can claim back VAT on the amount you pay toward your lease the same as you would with buying other business equipment. This can play a huge factor when taking into account the amount you could save by leasing your vehicle through your business, be certain to consult with your financial advisors to unlock the full benefits of what you can claim back.

Even though you will be paying a significant amount of company car tax you can make significant VAT savings on the other hand which mean you could make significant savings, particularly if there is a large amount of VAT. However, if your business is not VAT registered you will not be able to enjoy this particular perk.

Personal Leasing

There are benefits to leasing your car yourself when compared to putting it through your company, and while there are some downsides there are plenty of positives to this approach.

  • No company car tax
  • Your own road tax is usually a lot cheaper
  • Fewer tax complications
  • VED (Vehicle Excise Duty) is often included
  • Get a brand-new car every couple of years

Should you decide to against leasing through your business then you will be required to pay the full amount of VAT, which means adding 20% to the monthly prices of your lease right out of the gate. There are also no deductibles from corporation tax to be made, but your personal tax will be a lot simpler as you will have no benefit in kind calculations to factor in.

There will be a significant benefit to keeping track of your mileage as your business will be able to refund you 45p per mile for the first 10000 miles of business use and 25p per mile thereafter and this is tax free.