It is particularly popular with businesses, as it is a great way of getting a new vehicle or a new fleet of vehicles without spending a lot of cash or having it tied up in a depreciating asset.
There are also a huge amount of benefits of business car leasing, these include a huge amount of tax benefits that make it a very viable option for businesses.
So what are these benefits of business car leasing?
In this article, we look at the benefits of business car leasing and how they benefit you.
What is business car leasing?
Before we go further, let’s quickly look at what a business car lease actually is. In this article, we will be mainly talking about Business Contract Hire, the most popular form of business leasing and the one that features the most business benefits.
A business car lease is where you have a vehicle for a set period of time, while making fixed monthly payments. You have a fixed mileage and are contractually obliged to keep the vehicle in a good condition. This condition will be in-line with the BVRLA Fair Wear and Tear Guide which is the industry standard for all lease vehicles upon their return. When the contract is up, you hand the car back with nothing more to pay, subject to mileage and condition restrictions.
So that’s essentially what business car leasing is. As we mentioned, in this article, we are going to be mainly focusing on Business Contract Hire, but you can read more about other business leasing options here.
What are the benefits of business car leasing?
Okay, so what are the benefits of business car leasing?
As we said, vehicle leasing is extremely popular with businesses, and that’s because there are so many benefits to leasing a car for a business. So in this section of the article, we are going to talk about those benefits and how they benefit yourself and your business.
What are the tax benefits of business car leasing?
One of the huge benefits of business car leasing is the tax benefits. This is often one of the main reasons why businesses opt for Business Contract Hire.
In the eyes of HMRC, if you have a Business Contract Hire then you are technically renting the vehicle. Therefore, you can claim the VAT back. This means that if you have a Business Contract Hire then you will be able to claim 50% of the VAT back on the monthly and initial rental in your quarterly VAT return. This is if you are a VAT registered company. It is only 50% because HMRC will assume that you will be using the vehicle for business half the time and for personal use the other half.
If you will not be using your vehicle for personal use, including travelling to and from work, then you will be able to claim 100% of the VAT back. If the vehicle is kept at a place of work or in a compound and other employees will be able to use the vehicle, then the car will qualify as a ‘pool car’. You will have to notify HMRC that the vehicle is a ‘pool car’ and they will then allow you to claim 100% of the VAT back.
However, normally you will only be able to claim 50% back because many like to use their company cars for travelling to and from work, and for personal use at the weekends and outside of work hours.
Another benefit of business car leasing is that the liability of the vehicle does not show on accounts. It can be “off balance sheet”. Every set of Limited company accounts have a balance sheet containing all your assets and how much you owe. On a Contract Hire, however, the liability of the car doesn’t show up as a liability on the accounts. Considering the liability of the vehicle could be upward of £30,000, you can understand why this is a huge advantage. If you have strong accounts, then you can set up credit facilities as well as get lending or borrowing.
You can also offset the monthly rentals against your monthly tax bill. How much you can offset depends on how much CO2 your vehicle emits. If it emits more than 180g/km of CO2 then you can only claim 85% of the monthly rental against profits. However, if it emits less, then you can claim 100% back.
What are the cash flow benefits of business car leasing?
Another huge business advantage is down to cash flow. Everyone knows that in business, cash is King. And everyone also knows that cars are expensive.
However, if you lease a vehicle, then you do not have your cash tied up in a depreciating asset. Also, if you are not using that cash to buy the vehicle outright, you are not using up a huge amount of cash that you could use for daily 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 free cash in the bank that allows you to do your daily business.
Also, when you lease a car, you are not paying for the whole car. You are really only paying for the depreciation. This is opposed to a purchase scheme such as a Hire Purchase, where you pay for the whole car over a period of time. Because you are only paying for the depreciation, leasing is often cheaper than a purchase scheme.
So leasing is a great way of freeing up cash.
What are the time saving benefits of business car leasing?
Another benefit of leasing is simply the fact that it is time saving. Leasing is a very convenient way of getting a new company car, or a new fleet of cars.
If you go through a vehicle broker, then it is even simpler. All you have to do is tell them your budget, what sort of make and model you are looking at, and the mileage. Then, they will go away and shop around for the best deal for you. They will then present you with your options and you will choose which one is best. It’s as simple as that.
Not to mention the fact that the monthly payments are fixed, and road tax is often included. You can also get a maintenance agreement included, which covers all the servicing costs for the duration of the 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 leasing or business leasing?
If you have a business, you may be wondering whether you should go for a business lease or a personal lease. You may have also noticed that business leasing is often cheaper monthly than personal leasing, even though the make and model is the same.
Due to financial regulations, the purchase price of the vehicle has to appear on the documents with a personal lease. However, the price does not appear on the documents with a business lease. This means that manufacturers are more inclined to put a bigger discount on a business lease.
As we briefly mentioned earlier, the cost of a lease contract is determined by taking the difference between the purchase price and the residual value. This difference is then divided into monthly payments. Therefore, the smaller the difference between the purchase price and the residual value the lower the monthly payments. As the purchase price is often lower for a business lease, the price of a business lease is cheaper.
Of course, that’s not to mention the amount of benefits we have just mentioned above.
In conclusion, business leasing is very appealing to many, and it is understandable as to why. There are huge benefits to business leasing, including for cashflow purposes and tax benefits. It is also hugely convenient and a great way of attracting the best employees. We talk to businesses every day, and often talk through the business benefits of leasing a vehicle. So if you have any questions, then please do not hesitate to contact us and we can help you.