More and more people are becoming self-employed and with the rise of start-ups and the ‘gig economy’, it’s no surprise.
Of course, if you are a self-employed, then you will most likely need a car. And if you are self-employed, you might be wondering whether you can lease a car via a business lease, rather than a personal lease.
In this article, we look at business car leasing for the self-employed including looking at what business options are available to you, the criteria and the business benefits of leasing.
Who can get a business car lease?
Firstly, let’s see whether a self-employed person can qualify for a business lease.
You can lease a car through a business if you are any of the following;
- A Sole Trader
- Have a Limited Company
- A Partnership
- A VAT registered business
- A Limited Liability Partnership (LLP)
- A PLC
- A Charity
- Local Authority
- Central government
- An Embassy
In short, if you are self-employed, you can get a business car lease because you are a Sole Trader. However, there are other criteria that you must achieve before you can lease a car, which is what we are going to talk about next.
Will I qualify for business leasing if I’m self-employed?
To qualify for business leasing, then you will have to go through a similar process as if you were a private individual.
You will normally need to provide your latest set of accounts hopefully showing a positive net worth! Sometimes finance houses ask to see your latest bank statements as well as proof of address and ID. You will also have to go through a credit check.
If all of this checks out, then there is no reason why you should not be able to get a business lease.
What business lease options are there?
Now let’s have a look at your finance options;
- Business Contract Hire
- Finance Lease
- Operating Lease
Business Contract Hire
Business Contract Hire is one of the most popular forms of leasing and is what people are often talking about when they refer to leasing.
Business Contract Hire involves paying a fixed monthly fee for a period of time, sticking to pre-agreed mileage and condition restrictions. Once that time is up, you hand the car back with nothing more to pay (subject to mileage and conditions).
You can watch our Business Contract Hire video below.
Finance Lease is a great option for businesses. There are no mileage restrictions or condition restrictions on this scheme.
A Finance Lease works in the same way as a Contract Hire in which you pay a fixed fee for a set period of time. Once that time is up, however, things vary. You will have to find a buyer for your vehicle and introduce them to the finance house. They will pay the finance house and the finance house will use that money to pay off the remaining balloon payment. If you sell the vehicle for more than the balloon payment, you get the equity. If you sell it for less, however, you will have to make up the remaining balance. It should be noted that the lease company may charge a small fee for processing this. This is usually between 0.5% and 2.5%.
Alternatively, you can pay a small fee, usually one monthly payment, and keep the vehicle for another year (often called a peppercorn rental). But at some point, you will have to make the final balloon payment. You can watch our video on Finance Lease below.
Operating Lease works in the same way as Contract Hire. However, the only difference is that road tax is only included in the first year. There aren’t many manufacturers that do Operating Lease nowadays, it’s mainly Mercedes.
What are the business benefits to leasing?
There are plenty of benefits to leasing through your business if you are self-employed or otherwise, which is why it’s so popular. For example;
- If you are a VAT registered business then you can offset 50% of the VAT on a car
- And 100% on a van
- Finance commitments can be “off balance sheet” for Contract Hire and Operating Lease
- For Finance Lease, the finance commitments are “on balance sheet”
- You won’t have your cash tied up in a depreciating asset
- The monthly payments are fixed which makes for easy budgeting
- Road tax is usually included
- On occasion, business leasing can be cheaper than personal leasing
- We’ll go into more detail about that below.
You can read more about the business benefits to leasing here.
Do I have to pay company car tax if I am self-employed?
If you get a car through your business, then you may have to pay company car tax.
However, you are exempt if you;
- Are a Partner or a Partnership
- A Member of a Limited Liability Partnership
- You are the proprietor of your own business
Which means that, if you are self-employed, you are exempt from company car tax. However, if you become a Limited company, then you will have to pay company car tax.
Business car leasing vs. Personal car leasing for the Self-Employed; Which is better?
Is it better to lease through your business or do it privately?
Most of the time, we recommend that people go through their business if they can. This is due to the benefits that go alongside it. When you lease through a business you often have access to greater fleet discounts, meaning that it is cheaper to lease through your business. You can read more about that here.
You are also exempt from company car tax as a self-employed person, which makes business leasing more appealing if you are a sole trader.
However, there are some occasions in which it is better to lease privately, in which case we would recommend you go down that route. For example, if you cannot provide the information the finance house needs about your company, or you do not have your latest set of accounts showing a positive net worth or the vehicle you are looking at has a high CO2 rating and/or P11d value, then you may have to go privately.
If you do lease privately, you will still have to undergo a credit check to ensure that you can make the monthly payments. If you have a bad credit score, then don’t be disheartened, you can read our article on how to lease with bad credit here.
Whether you choose to lease through your business or privately is up to you, but most of the time we would recommend you lease through your business. You can read more about leasing privately here.
In conclusion, you can lease a car if you are self-employed, but you will have to go through the same processes as other businesses and private individuals. There are a lot of advantages to leasing through your business including tax benefits and the fact that you could end up getting a better deal than if you went privately. However, it isn’t for everyone, and you may find it easier or better for your situation if you lease privately. Ultimately, though, it’s down to what is best for your situation.
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