How does business car leasing work?

Looking to impress with a new company car but don’t want the expense and hassle of ownership? Business car leasing offers a flexible, cost-effective, and tax-efficient alternative to purchasing company cars.

When you lease a company car instead of buying it, you get to drive around in a brand-new vehicle equipped with state-of-the-art technology for an affordable monthly cost.

Ready to find out more about business car leasing? Read on to learn how it works.

What is car leasing?

Business car leasing, sometimes also called business contract hire (BCH), is a service that gives businesses access to company vehicles without the expense and commitment of owning them. Businesses can lease a wide variety of different vehicle types, including cars, vans, and trucks.

Car leasing is a financial agreement similar to a long-term rental agreement. You pay fixed monthly instalments to use the car during the lease period, but you never own it. The monthly cost of leasing a car is usually considerably more affordable than buying a car.

How does business car leasing work?

Interested, but not just if you’re eligible? Business car leasing is available to sole traders, limited liability partnerships, limited companies, and any other business entity.

Business car leasing works in much the same way as personal leasing. Once you have chosen the right vehicle and lease deal for you, you pay a one-off advance rental payment. This payment is part of the total rent amount due, so the more you pay, the lower your monthly instalments are. This one-off advance payment is usually the equivalent of 3, 6, 9, or 12 monthly instalments.

After that, you pay a fixed monthly cost to lease the car for the duration of the fixed-term agreement. This cost covers all your expenses, including financing, depreciation, registration, vehicle excise duty, and a full manufacturer’s warranty. It doesn’t usually cover maintenance and servicing, but most leasing companies also offer this service as an optional add-on. Once the lease agreement has ended, you either hand the vehicle back, exchange it for a new model or extend the lease.

Business car leasing has several benefits, which we will explore in more detail next. It is usually cheaper to lease a car as a VAT-registered business than as an individual because VAT-registered businesses can claim back some of the tax on the deal.

How does car leasing benefit your business?

Businesses must constantly search for ways to cut expenses, operate more cost-efficiently, and maximise returns. Acquiring a company car or a fleet of vehicles is an expensive necessity for many businesses. Leasing allows businesses to access professional company cars affordably. Let’s discover some of the benefits of choosing to lease your company vehicles rather than buy them.

• Cost-effective – The cost of leasing a car is usually considerably lower than the cost of buying a car. Leasing also helps businesses avoid the expensive depreciation costs of buying a brand-new vehicle.
• No big capital outlay – The initial rental payment required to lease a car is flexible and significantly lower than what you would be required to pay when buying a new vehicle. Minimising your capital outlay helps you to maintain your working capital to invest in your business rather than depreciating assets.
• Company image/reputation – Leasing a car rather than buying allows your business access to the latest vehicle models. Driving a new vehicle can help to boost your company’s professional image and reputation.
• Cash flow management – Leasing also consolidates various driving expenses into one predictable, fixed monthly cost. This helps with cash flow management and budgeting.
• Reduced maintenance costs – Brand-new leased cars tend to need less maintenance and repairs and are covered under the manufacturer’s warranty, helping to reduce overall business expenses.
• Tax benefits – Finally, several tax benefits are associated with leasing a company car, which we’ll explore in more detail next.

Paying tax on business cars

Car leasing offers several tax advantages if you’re looking for ways to minimise your business’s tax liabilities. Let’s find out how car leasing can be a financially savvy choice for businesses looking to optimise their tax efficiency.

Off the balance sheet – When you lease, vehicle costs are kept off the balance sheet, and you are not required to account for losses like depreciation or vehicle disposal, which can otherwise negatively affect your business’s profit and loss.

Offset against profits – If your business pays corporation tax, you may also be able to offset the finance charges against the taxable profits, depending on the vehicle’s emissions.

Claim back VAT – If the lease car is only used for business purposes, then 100% of the VAT on the lease payments can be reclaimed. If it is used for a mixture of business and personal use, then 50% of the VAT can be reclaimed. You can also reclaim 100% of the VAT paid on any services, such as vehicle maintenance.

Business car leasing with LetsTalk Leasing

At LetsTalk Leasing, we offer a wide range of vehicles and flexible leasing options. You choose the vehicle, mileage, and lease term. Our business leases range from 2 to 5 years and feature annual mileage allowances of up to 30,000 miles. No matter your requirements, we have an affordable and cost-effective option.

We are proud to be one of the top leasing companies in the UK. Offering flexible and competitively-priced leasing deals on some of the most popular new vehicles on the market today. What’s more, our leasing service is simple and hassle-free. We are always transparent about our fees too; we promise no unexpected costs!

For more information about our business car leasing services, contact our friendly advisors by calling us on 0330 056 3331 or emailing contact@letstalkleasing.co.uk.