What is the difference between business and personal car leasing?

13th Oct 2021

What is the difference between business and personal car leasing?

So, you’ve looked at the benefits of car leasing, and now you’re ready to commit. But should you choose a business or a personal car lease?

Both offer their own perks in terms of cost, flexibility and tax, but it depends on what you’re using the car for.

What is personal contract hire?

Personal contract hire offers an affordable alternative to buying a car outright. Aside from the benefits of losing no value and driving away a brand-new car, it also includes road tax. Many personal leasing deals offer maintenance packages, for example, servicing and tyres.

You agree to ‘rent’ the car for a set number of months, usually from 12 to 48. You’ll pay a non-refundable deposit (three times the fixed payment amount) and return the car at the end of the rental period. You may upgrade if you wish.

Personal contract purchase

This option is available for those who want to own the car at the end of the contract. The payments will finish, but remember you’ll have to pay a much larger ‘balloon payment’ and the car will depreciate.

What is business contract hire?

Business contract hire is often cheaper than personal leasing, but is exclusively for corporate use. You may ask for a mixed personal and business contract, but this could be more expensive.

With business contract hire, the down payment will be higher, for example six times the standard monthly payment. However, you can enjoy tax benefits such as VAT claims.

Pool cars

Company cars used to travel to and from work will be subject to company car tax, as this counts as personal use. However, if the car is stored on the premises, you’ll be exempt.

Is it worth leasing a car through my business?

Absolutely – it’s an affordable alternative and allows you to offer your employees ‘fringe benefits’. You can claim back 50% of the VAT on your monthly payments if the cars are exclusively for business use. Likewise, if you take out a maintenance agreement, you can claim 100% of the VAT back.

If you use the car for personal travel, you’ll need to deduct business travel from the total mileage, as you’ll have to pay VAT on the personal mileage.

Benefit in Kind tax

One perk of personal leasing is that you won’t pay BIK tax. This is an income tax which is charged to the driver. The amount you pay is based on:

• The vehicle’s P11D value (its taxable value based on condition, fuel type and emissions)

• Your annual income

• Time off the road e.g. for maintenance.

This is a great incentive to drive a low emissions car – if it’s electric, you will not have to pay company car (BIK) tax. You can calculate taxable value here.

How to get a business lease car

Remember that you’ll have to provide more details when leasing a business vehicle, for example company information and details of business versus personal use. You must also be VAT registered.

Personal or business contract hire – what’s best for me?

Keep in mind that both options are subject to:

• Credit checks (it is easier to get a personal lease with bad credit)

• Mileage limits – you may have to pay a fee if you exceed these

• Insurance – this is your responsibility

• Fixed monthly payments – the broker owns the car and can repossess it, or charge a fee if you choose to end the contract early.

Business leasing may be cheaper, but personal leasing can be more flexible. Ultimately, it comes down to your personal use.

On both counts, you’ll have a new, reliable vehicle that’s unlikely to need excessive repairs. Make sure you’re ready to commit to monthly payments, and to return the car in its original condition (subject to fair wear and tear).

To find the best deal for you needs, contact Car Lease Agent