Business leasing is becoming an increasingly popular form of leasing as of late. It’s cheaper than buying, you can change your fleet regularly and there are a range of benefits.
But, what exactly are the benefits of business leasing?
We explain these benefits every day at OSV so we’ve written an article on the different types of business lease, and the benefits.
What are the different types of business lease?
What is business finance lease?
A business finance lease is not the most popular lease. But, it does have an important place for some requirements. Not only is it more flexible than business contract hire, it’s perfect for those whose cars will be doing excessive mileage. It’s also great for those with conversion units, such as refrigeration units.
A business finance lease works essentially the same as other lease agreements; you pay fixed monthly payments for a period of time. The only difference between a finance lease and other lease agreements, however, is what happens at the end.
At the end of a finance lease you are responsible for selling the vehicle on. When you find a buyer, you introduce them to the finance house. They will then pay the finance house the agreed sale price. Of course, if this is more than your final balloon you will get the money back from the finance house. If it is less than your final balloon, however, you will have to make up the difference.
Alternatively, you can go into a secondary rental and keep the vehicle for a further year. For more information on this you can watch our video on business finance lease.
Finance lease is much more flexible than other lease agreements, and there are no mileage or condition charges.
What is a business operating lease?
A business operating lease is pretty uncommon these days but is the original lease scheme. Mercedes are really the only ones who offer this.
It’s pretty much the same as business contract hire. The only difference is that road tax is only included in the 1st year of the contract with an operating lease. After that year, you are responsible for paying it.
What is business contract hire?
Business contract hire is the most popular form of business leasing. The company will have the car for a period of time, paying set monthly payments. At the end of the contract, the car is handed back.
Who can get a business lease?
As I mentioned, business leasing has become extremely popular. But, who can actually get a business lease?
You are eligible for a business lease contract if;
- You have a Ltd. Company
- Are a sole trader
- A partnership with less than 4 partners
- A VAT registered business
What are the business benefits to leasing?
This is the bit you’ve been waiting for; what actually are the business benefits with leasing?
The following do not apply to all contracts. It’s important to note this. However, these are exclusive to business lease contracts and are not available to private individuals;
There are tax benefits to business leasing
If you are leasing your car through a VAT registered company, you can claim 50% VAT back on the monthly payments. You can claim 100% of the VAT back if you are leasing a van. The exception to this is if you use the car for personal use as well. If you do use the car privately, then you cannot claim the VAT back.
You can, however, claim the monthly cost of the lease against profits. The percentage of this varies. If your car emits more than 160g/km then you can only claim 85% back. If it emits anything less than that, you can claim 100% back.
You don’t have your cash tied up into a depreciating asset
Because you are leasing instead of buying, you don’t have to worry about depreciation
It provides a better accounting solution
With business contract hire, the finance commitments can be “off balance sheet”. This means that the liability of the finance doesn’t appear on the company accounts.
Business Contract Hire vs. Personal Contract Hire; Which is cheaper?
We often get asked which one of the contract hire agreements is cheaper. And the answer is, it depends.
Of course we were going to say that. It really depends on your situation.
There will be occasions where manufacturers and suppliers will offer businesses better discounts on business contract hire. However, this isn’t always the case.
Also, although personal contract hire may be more monthly, you won’t have to pay company car tax (more on that in a little bit) .
However, you can claim back the VAT if you have a business contract hire. If you can’t, then you can claim back the monthlies against profits. And, the financial commitment can be “off balance sheet”. So there are definite benefits to business leasing.
You can read our article on why business contract hire is cheaper than personal contract hire here.
Do I have to pay company car tax?
One of the downsides to a business lease is that you may have to pay company car tax.
You will be eligible for company car tax if you use your car for personal use. This includes driving to and from work. So, if you leave your car at your place of work overnight and use it strictly for business reasons, you won’t have to pay company car tax.
You are also exempt from company car tax if;
- You are a partner or in a partnership
- A member of a Limited liability partnership
- Or, you are a sole trader
So as you can see, there are business benefits to getting a business lease contract. And, these benefits vary depending on what contract you have and what you use your car for. The only downside is that you have to think about company car tax. But, the tax benefits may outweigh the cost of the company car tax. Ultimately, it’s down to you whether you decide to lease privately or through your business.