Leasing is one of the most popular ways to get a new company car, which also comes with many business benefits.
Business car leasing is a particularly attractive option, as it’s a way to get a new vehicle, or a fleet of vehicles, without spending a lot of money or having it tied up in depreciating assets.
So, what are the benefits of business car leasing?
In this article, we look at the benefits of business car leasing and how it can be a benefit to you and your company.
What is business car leasing?
Before we go any further into the benefits of business car leasing, let’s take a quick look at what a business car lease actually is.
We will primarily be talking about Business Contract Hire, which happens to be the most popular form of business car leasing and the one that has the most business benefits.
The key points of a business car lease are the following:
- The contract is for a set period of time – usually between 24 to 60 months
- You make fixed monthly payments
- You have a set mileage for the duration of the contract
- You are contractually obliged to keep the vehicle in good condition – in line with the BVRLA Fair Wear and Tear standards
- When the contract is up, you hand the vehicle back with nothing more to pay, subject to mileage and condition restrictions.
So those are the basics when it comes to business car leasing.
As we have previously mentioned, we will be focusing mainly on Business Contract Hire.
What are the benefits of business car leasing?
Okay, so what are the benefits of business car leasing?
Vehicle leasing is extremely popular with businesses, and that’s due to the fact that there are so many benefits to business car leasing. We’re going to talk about the benefits and how business leasing can be great for you and for your business.
What are the tax benefits of business car leasing?
One of the biggest bonuses of business car leasing is the tax benefits. This is one of the main reasons why businesses often opt to get a car lease through Business Contract Hire.
According to HMRC, if you have a vehicle on a Business Contract Hire agreement, then technically you are renting it. Therefore, if your business is VAT registered you can claim 50% of the VAT back on the monthly and initial rental payments in your quarterly VAT return.
You can only claim 50% back as HMRC assumes that you will be driving on company business half the time and for personal errands the other half.
If you have no intention of the vehicle being used for personal journeys (including the commute to and from work) then it is possible for you to claim 100% of the VAT back on monthly and initial payments.
If the vehicle is kept securely in your place of work when not in use, and other employees of the company are allowed to use it, then the car will qualify as a ‘pool car’. It will be necessary to notify HMRC that the vehicle is a ‘pool car’ and they will then allow you to claim 100% of the VAT back.
However, it’s worth being aware that normally, you will only be able to claim back 50% of the VAT as most companies like to use their company vehicles for the daily commute, business travel, and personal journeys on the weekends and outside of working hours.
Another benefit of a company car lease is that the liability of the vehicle does not show on the company accounts. It can be an “off-balance sheet”. All Limited company accounts have a balance sheet containing all the business assets and how much is owed.
However, a Business Contract hire agreement doesn’t show up as a liability. Considering a new vehicle can often cost upwards of £30,000, this is a huge benefit to the business. If the business has strong accounts then it’s possible to set up credit facilities for it, as well as borrow money.
You can also offset the monthly rental payments against your monthly tax bill. How much you can offset depends on how much CO2 your vehicle emits.
If the vehicle emits more than 110g/km of CO2 then you can only claim 85% of the monthly rental against profits. However, if the car emits less, then it’s possible to claim 100% back.
What are the cash flow benefits of business car leasing?
Another one of the benefits of business car leasing is the positive effect on cash flow. Everyone knows that in business, cash is king. And it’s an unavoidable fact that cars are expensive.
Leasing a vehicle ensures that your cash isn’t fully invested in a depreciating asset. Opting for a lease means you’re not committing a significant amount of money to purchase a car outright, freeing up funds for the day-to-day operations of your business
Whether you choose to put more down initially and have smaller monthly payments or pay more monthly in order to put down a small initial payment is up to you. Regardless, you have more money in the bank that will enable you to do your daily business.
When you lease a car, you’re not paying for the entire vehicle; instead, you’re covering the cost of its depreciation. This is different from a purchase scheme like Hire Purchase, where you pay for the entire vehicle gradually over a specific period
A car lease is a great way to free up funds for your company.
What are the time-saving benefits of business car leasing?
Another benefit of business car leasing is simply the fact that it can save you time. Car leasing is a very convenient way of getting a single new company car or a whole fleet.
If you decide to go through a vehicle broker, like OSV, then we can make it even simpler. All you need to do is:
1. Get in touch with us
2. Tell us your budget, the vehicle you’re interested in, and the mileage you need
Then we deal with the rest.
We can search for the perfect vehicle to fit your needs and then present you with the options we discover so you can choose which is the best for you. It’s that straightforward.
Another important factor is that the monthly payments are fixed, and Vehicle Excise Duty, often referred to as Road Tax, is often included. It’s also possible to get a maintenance agreement that will cover all the servicing costs for the duration of your contract.
A maintenance agreement is a small additional fee and essentially staggers the cost of the servicing across the duration of the contract, instead of having to fork out the full amount when the time comes.
Which is cheaper – personal or business leasing?
If you have a business, it’s possible you’re wondering whether you should go for a personal lease or a business one. You may have also noticed that company car leases often have lower monthly payments than the same vehicle on a personal lease.
Due to strict financial regulations, the full purchase price of a vehicle has to appear on all documents with a personal lease. However, if you get the same vehicle on a business lease the price doesn’t have to appear. This means that manufacturers are more inclined to put a bigger discount on a business lease.
We briefly touched on how the cost of a lease is determined earlier. Essentially the cost of a lease is worked out by looking at the difference between the purchase price and the residual value of the vehicle. This difference is then divided into monthly payments.
Therefore, the smaller that difference is, the lower the monthly payments you have to make. As the purchase price is often lower for a company car lease, the cost of a business lease is cheaper.
A company car lease is very appealing to many, and it’s easy to see why. There are huge benefits to business car leasing, including the positive effect it has on company cash flow and tax benefits.
It’s also incredibly convenient, time-saving, and a very good way to attract the best employees when a company vehicle is offered as part of the job package.
We talk to businesses every day and are often asked to explain the many business benefits of leasing a car. So if you have any questions, then get in touch and let us help you.
