Car Leasing and Tax Advantages

author image-crispin
By Crispin Bateman
Updated on Thursday 5 December 2019

Person handing over car keys

When running a business, you are always looking for ways to save your company money. Waking up one morning and thinking ‘I’m going to buy a new car for my company’ isn’t usually on the list of things to do for the more frugal businessman.

However, it could turn out to be one of the more sensible ones, if done properly.

Are there tax advantages to leasing a car? Is it better to lease or buy a car for tax purposes?

When you buy a car, you plough many thousands of pounds into your business for some equity. Only, with cars, that equity can quickly become a liability. Your company books are not going to look good with a substantial amount of borrowing on it - £30,000 in debt for a car that depreciates by 60% in the first few years is going to make it negative equity within a short while.

That’s why many smaller businesses shy away from buying cars.

Business leasing, on the other hand, comes with tax benefits. One of those is that it doesn’t appear as an asset on your company accounts – it’s a monthly outgoing. You still get the brand-new car and everything that comes with it, from the sheer thrill of driving something modern and shiny, to the real benefit of knowing you don’t have to worry about maintenance or the thing breaking down on you on the way to a client. You also get to leave your credit line untouched, and still have that available for other investments.

Is business leasing cheaper than personal contract hire?

If you get a car through personal contract hire, everything is on you. Looking at car lease tax deductions for self-employed people and sole-trader car leasing tax advantages, even those people who have a one-person company can benefit by business contract hire rather than personal – and even if you are of a size too small to be VAT-registered.

Once you move to slightly larger companies – car lease tax deductions with HMRC make business leasing a perfect solution.

Can I lease a car through my limited company? Is leasing a car a tax deduction?

The cost of your car lease through your limited company is a 50% offset against your annual tax. It is 100% for a van, but the government assumes you will spend 50% of your time (and miles) using your car for personal use. If you can show that isn’t the case (because the car lives at the office and is only used in the day for business, for example) then you can claim the full 100% tax back for the car.

Are there other tax implications of a company car?

Alongside the leasing benefits for business owners described above, there is one additional cost if you supply company cars to employees as part of their contract – increased NI contributions for giving a job-perk.

This increase is typically quite minor and is related to the overall value of the leased car. Check when choosing your lease car its effect on employer contributions.

Where can I lease a company car?

Compare UK Quotes are here to help you with financial advice for both personal and business interests. We look at a wide range of providers to find the best out there and we feel that Complete Leasing has a strong team of experienced and knowledgeable car leasing specialists. They have a wide range of vehicles available to lease and offers for both business and personal use, from sports cars to vans and everything in-between!

For more information regarding car leasing and ownership, look to our library of articles on the subject.

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