More and more people are choosing to be self-employed, deciding to work as freelancers or starting their own small businesses. With the rise of start-ups and the popularity of the ‘gig economy’ (freelancing and temporary work), this increase is no surprise.
Of course, if you’re self-employed, it’s possible that you will be in need of a car and you might be wondering whether it will be possible for you to lease a car via a business lease, rather than getting a personal lease.
In this article, we look at business car leasing for the self-employed. We will also be looking at what business options are available to you; what the criteria are and the business benefits of leasing.
Can you get a business car lease if you’re self-employed?
If you’re self-employed can you qualify for a business lease? There are several types of person who can qualify for a leasing a car through a business
If you are any of the following you may qualify for business lease:
- A sole trader
- Have a limited company
- A partnership
- A VAT-registered business
- An LLP (limited liability partnership)
- A PLC
- A charity
- Local authority
- Central government
- An embassy
Essentially, if you are self-employed, you can get a business car lease as you are considered a sole trader. However, there are other criteria that you must achieve before you can lease a car.
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Will you qualify for business leasing if you’re self-employed?
To qualify for business leasing you will have to go through a process similar to the one you would if you were applying as a private individual.
When applying for your business lease you will be asked to provide your latest set of accounts. These will hopefully show you have a positive net worth! Sometimes Finance Houses will 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?
If you’re looking at car leasing for the self-employed and applying for a business lease there are several options for you to choose from. These options are:
- 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).
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 Business Contract Hire. You will pay a monthly fixed fee for a set period of time. However, once that time comes to an end you have two options as to what you can do with the leased vehicle.
- You find a buyer for your vehicle and introduce them to the Finance House. The buyer will pay the Finance House, who 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%.
- You can pay a small fee, usually one monthly payment, and keep the vehicle for another year (this is often called a Peppercorn Rental). Of course, at some point, you will have to make the final balloon payment.
Operating Lease
A Business Operating Lease works in the same way as Business Contract Hire. However, the only difference is that Vehicle Excise Duty is only included for the first year. Operating Leases are not as common any longer, with them primarily being offered by Mercedes.
Want to find out more about the finance options available? Download our FREE guide to vehicle leasing by filling in the form below.
What are the business benefits of leasing?
There are plenty of benefits to leasing through your business if you’re self-employed or otherwise, which is why it’s so popular. For example:
- If your business is VAT-registered then you can offset 50% of the VAT on a car
- If you have a van you can offset 100% of the VAT
- Finance commitments can be “off balance-sheet” for vehicles on Contract Hire or Operating Lease
- If you get your car on a Finance Lease, the financial commitments are “on balance-sheet”
- Your money won’t be tied up in a depreciating asset
- Monthly payments are fixed which makes for easy budgeting
- Vehicle Excise Duty is usually included
- On occasion, business leasing can be cheaper than personal leasing
- We’ll go into more detail about that below.
Do you have to pay Company Car Tax if you’re self-employed?
So, is it better to lease through your business or as a private individual? There are many options when it comes to car leasing for the self-employed.
Most of the time we recommend that if you can go through your business then you should. This is because of the benefits that go alongside a business lease.
When you lease through a business you often have access to greater fleet discounts, meaning that it can cost less to lease through your business.
If you are self-employed then you are also exempt from paying Company Car Tax, and this can certainly make business leasing more appealing if you’re a sole trader.
However, there are some occasions when it will be better for someone to get a personal lease; when this is the case we will recommend you go down that route. If you are unable to provide the information the Finance House needs about your company, you don’t have the latest set of accounts that show your business has 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 take out a personal finance solution for your vehicle.
If you do lease privately, it will still be necessary to go through the credit check process to ensure that you can make the monthly payments. If you have a bad credit score then don’t be disheartened, there are options available to you.
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 which option is best for your individual situation.
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Interested in finding out more about car leasing for the self-employed? Request a callback and one of our specialists will guide you on your best option to suit your situation. We can then find you the perfect vehicle for your work at a budget that suits your finances.
heres a question; what happens to your business car lease if you close your self-employed business?
Hi Hamed, If you are self-employed and close your business you are still liable to keep up the payments on any finance or lease agreement which you set up when you were in business, this is because the business is not its own legal entity like a limited company is. I hope this answers your question.
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?
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.
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
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 [email protected] and we can arrange for one of our experts to walk you through some guidance.
Hi I have only just gone self employed so no accounts as yet. What will be my best option for lease? thanks
Hi Ian,
Your best option is to talk to an independent brokerage (like OSV) who have many finance companies to go to. If you would like me to get someone to call you, they will just find out about you and your previous experience (if any), understand your current financial situation (positive or negative), and what kind of vehicle and solution you need. Then, with our experience we would offer a solution tailored to your needs. What’s really important is that you don’t propose yourself randomly as this will show as searches on your credit file.
Would you like us to help you. Call Amanda on 01903 223391 and she will be able to help.
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?
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!
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.
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).
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 [email protected]
Hi. I am thinking of leasing a car and would ideally like to put it through my business. However, I don’t really need a car to conduct my business as I work from home. Can I still put it through the business? Thanks
Hi Paul,
I don’t see any reason why not.
I can get one of our independent advisors to contact you so you take the best route for your next vehicle. If you would like to request a call back via our contact page, or call us on 01903 538835.
Hi, i have just got a new job which is technically self-employed. Trying to find information on how a company car works is hard and i was wondering how the insurance works, do i have to insure the car the normal way of contacting an insurance company and classing it as my own vehicle or do i speak to the people i would arrange the business contract hire from (i.e ford, bmw, etc) Thanks
Hi Callum,
If the car has been provided by the company then normally the company would insure it. However, if you are financing the vehicle yourself, then you would need to insure it. Our consultants at OSV would be more than happy to assist you with the vehicle and at the same time introduce you to a brilliant insurance company. If this is of help, please call Amanda on 01903 223391.
We hope that you find this information of help.
I am self employed but not registered for VAT. Are there any other tax benefits for me leasing a car?
Hi Basso,
Thank you for your comment. We have another article on the site which may be of help to you that you can find here ‘Tax benefits and implications of business car leasing’. If you have any more questions and are interested in leasing through your business, please get in touch with Amanda on 01903 223391.
Can you insure someone else on to the car?
Hi Dottie,
The Lease Company won’t have a problem with this (as a rule), however, this is a question you will need to ask your insurer. Some will be more restrictive than others. We hope that this helps to point you in the right direction.
Hi
I have been trading as a limited company since may 2020 and my company can show it is doing well since then. I have a good credit history.
I want to lease a Tesla. As I’ve been trading since may will I get a business lease?
Hi Richard,
If you would like to find out more about getting a business lease please contact one of our experienced vehicle specialists on 01903 538835, they will be happy to help you find out more about the business lease process and be able to give you guidance on which path is right for you.
As a fairly new start up company; is it possible to lease a car? Do you need an minimum amount of income?
Hi Aimee,
Thank you for your comment. Every case is different, so we would recommend you contact us and we can go through your needs and budget. Call us on 01903 538835 and we can help.
Hi I have both a salary paid full time job and I do some self employed admin work, with COVID hitting my part time work over the last 18mths or so would my previous years be ok to prove worth or would it count that my full time job is enough to maintain the payments or as I’m part time self-employed would then render me ineligible
Hi Tony,
There are many factors that would go into getting a lease, but we would recommend, if you are looking for a new vehicle, that you get in touch to go over your requirements. You can call us on 01903 538835 if you would like to talk about a new lease.