Business Car Leasing For The Self-Employed

We look at everything you need to know about business car leasing for the self-employed

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.

Business of flower shop with woman owner

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.

files in a white box

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.

Are you ready to learn more about Business Contract Hire?  Discover more information and everything you need to know here

Finance Lease

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

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”
blond women talking on the phone via Bluetooth headset whilst driving
  • 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.

3 wooden blocks standing on stacks on coins spelling out the word tax

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.

Electrician Standing Next To Van Talking On Mobile Phone
Holly Martin

Holly Martin

Content Co-ordinator at OSV Ltd
Holly enjoys: Reading, music and spending time with friends.

Within a week of Holly starting work at OSV she became an indispensable part of the marketing team. She's very intuitive and gets on with the whole office effortlessly.
Holly Martin

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11 Comments

  • Liz Harwood| 16th August 2018 at 12:43 pm Reply

    I am self employed and thinking of leasing a car which I will pay through my business account – I am looking at a car about £200/month and with less that 130 co2 emission, is it right that i can claim back 50% of this monthly charge in my self assessment tax return.
    I expect to use the car for mainly business (say 70/30 business use).

    • Abbie Rawcliffe| 17th August 2018 at 4:56 pm Reply

      Hi Liz,
      The latest information we have is that if the CO2 is less than 110 you can offset 100%. If the CO2 is above this you can offset 85%. Regarding VAT you can offset 50% of the VAT on the rental, however, we are not accountants and you should seek your own independent advice from a qualified accountant.

      Can we help you with finding the perfect car? We do have a great team here who help customers just like you. If we can be of help, please email amanda.lelliott@osv.ltd.uk

  • Bert| 8th July 2018 at 10:23 am Reply

    Hi, I was wondering what the situation is if you are employed full-time but also registered self-employed for part-time casual work? My sole trade/self-employed income wouldn’t make for a good balance sheet but add to this my full time wage and it’s a different story. Would I be eligible for a business lease? I would use the car for mainly personal use including commuting to and from my main place of (full-time) employment. Not sure if this sounds legit or some sort of fraudulent tax dodge. Thanks!

    • Abbie Rawcliffe| 9th July 2018 at 2:33 pm Reply

      Hi Bert,

      Thank you for your comment. We have passed this onto our vehicle specialist team who will be in contact with you to provide answers to your question.

  • Stephen Dodson| 12th June 2018 at 8:55 am Reply

    Mike
    I would imagine that only 50% of the VAT would be tax-deductible because of the private use element. Thus (210-17.50) £192.50 per month tax deductible subject to private use element of 50% (assuming less than 130g/km) leaves £96.25 to claim. Otherwise your wife would be able to claim for per month than a VAT Registered trader, which surely cannot be the case?

  • Alan Day| 10th April 2018 at 9:30 am Reply

    Hi there,

    I’m really green here. I would like to lease a car as a sole trader. Without the car I can’t trade but will also use for my personal use. Do I put all the costs through the business and then claim back? Problem is my work is fluid and not easily separated.
    Sorry to ask such simple questions !

    Alan

    • Abbie Rawcliffe| 10th April 2018 at 11:38 am Reply

      Hi Alan, this is a great question, which we would love to help you on, it’s to big a question to answer on here so please message me on abbie.rawcliffe@osv.ltd.uk and we can arrange for one of our experts to walk you through some guidance.

  • Mike| 26th January 2018 at 5:52 pm Reply

    Hi,
    My wife is self employed and runs her own business. She has a car on lease that she pays for through her business bank account.
    She pays £175 + VAT = £210 per month for the lease of the car. She isn’t VAT registered.
    Do you know how much of the monthly cost she can claim back on her tax return? I would say she uses it 50% business & 50% personal.
    And can she claim back the original setup costs?

    • Abbie Rawcliffe| 2nd February 2018 at 1:03 pm Reply

      Hi Mike, It depends on the co2 emissions. If they are 130g/km or less then 50% of the £210 would be deductible ie £ 105. If more it would be subject to a 15% reduction ie £ 89.25.I hope this helps.

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