Why is business car lease cheaper than personal?
When you are looking at car leasing and the deals available to you, you will often see a price for both business and personal lease.
There are some key differences between both and the main one you may initially notice is the price.
The reason business leases seem so much cheaper than personal leases is VAT. With a business lease, the business can claim back 100% of the VAT if the vehicle is used solely for business use. If the vehicle is also used for some personal use 50% of the VAT can be claimed.
Business Leasing
Business leasing or business contract hire is very similar to personal contract hire in that a business leases the vehicle for one to five years pays an initial deposit and then a monthly payment, and hands the vehicle back at the end of the term.
For a business to be eligible for business leasing they need to be a limited or private VAT-registered company/ partnership. When you lease a vehicle for business you will need to consider Benefit in Kind tax and make sure your insurance covers you for business use.
If you would like to find out more about business leasing or would like advice on your eligibility, please contact our team of experts who will be happy to help.
Benefits of business lease
Because you can reclaim some or all the VAT on business lease payments, leasing through a business is usually cheaper than personal leasing. You will also find that with business leases the mileage allowances are higher considering motorway mileage company cars are usually subject to.
Company car tax
Image of customers in a showroom being given a key to a car
Image of a fleet of cars
Company car tax or as it is now referred to, Benefit in Kind (BIK) tax Is the amount of tax you pay through your wages for the privilege of having a company car. The amount of BIK tax you pay will depend on the value of your vehicle, your annual income and the emissions of the vehicle.
You can save money on tax by choosing a more economical vehicle. The government are using this as an incentive to boost the uptake of hybrid and electric vehicles.
To find out how much you are likely to pay in car tax you can use our company car tax calculator.
See our range of electric vehicles!
Personal leasing
Personal leasing or personal contract hire is when you lease a vehicle for an agreed term of 1-5 years. You pay an initial deposit and then a monthly payment through the term of your contract. Once the contract comes to an end, you hand the car back and either agree on a new contract with a brand-new vehicle or simply walk away.
One of the terms of your lease contract will be mileage allowance, with Car Leasing we offer you the flexibility to change your mileage allowance during your contract if your circumstances change.
With a personal lease, the price will include the full cost of VAT as you are not able to claim it back.
Benefits of personal lease
Personal leasing comes with a range of benefits. Firstly, the cost of leasing a car can be much more cost effective than buying a new vehicle as the set payments are set out over your agreement. The lease terms can include the cost of maintenance and your car tax.
With car leasing you can get a new vehicle every time you start a new lease. There is no balloon payment at the end of a lease term, you simply hand the car back to the leasing company and either begin a new lease or walk away with no hassle.
Frequently asked questions
If you are self-employed you can lease a vehicle through a business lease and claim back your VAT. Please get in touch with one of our experienced advisors who will be happy to help you through the process.
If you are using a vehicle for work purposes whether it is a business lease or not, you will need to declare this to your insurance company so they can amend your policy.
Any mileage that has been carried out for the purpose of your business can be claimed back whether you are using a personal vehicle or not. You can claim up to 45p per mile if you use your personal car for business use.
With personal leasing the car is signed for by the individual who will be the main driver. For a business lease, the car will be signed for by the business so you will need the name and address of the company director and bank statements or accounts for the business.