5 benefits of leasing for businesses

With multiple ways for businesses to fund their vehicles, what makes leasing stand out?

Ultimately, it comes down to the two things businesses always want more of – time and money.

Business leasing covers all the bases for companies looking to add new vehicles to their fleet. It provides tax benefits, improved cash flow and unmatched convenience, bundled up with a shiny new car.

It’s enjoyable, economical, and it's safer for your employees. And, importantly, a brand-new lease car is a better representation for your business at client meetings than a battered old car that’s on its last legs.

There are many benefits to leasing a car for business: we’ve broken down five of the best, so you can get behind the wheel of your next car with the peace of mind that you’ve made the right choice.

Want to know how you can make your fleet even more efficient? Book a call with our Corparison fleet experts to find out more.

Tax savings

Reclaim tax costs

One of the benefits of leasing a car through your business is the ability to reclaim tax costs.

If your business is VAT registered, you’ll have the option to claim back a portion of the tax paid towards the car lease. This is why, when you have a look at our wide range of business lease deals, you’ll see them advertised exclusive of VAT.

If the vehicle is used solely for business purposes, you can reclaim the full VAT. This drops to 50% if you also use the vehicle for personal journeys.

However, if you take out a maintenance package with your lease deal, you can reclaim 100% of the VAT on this portion of the lease, whether you use the car for personal journeys or not.

Offset lease costs against your tax bill

As well as making potentially significant savings on your tax, you can also offset the cost of your business lease against your annual tax bill.

Unlike a purchased asset, the cost of leasing your vehicle/s is classed as an expense by the Tax Man. This means you can offset your lease payments against your profit and therefore your tax bill.

The amount you’ll be entitled to is dependent on the emissions your car produces. If it’s less than 110g/km, you can claim 100% of the lease rentals against profits.

If it’s more, you can claim 85%.

Running costs, including fuel and insurance, are also classed as deductible expenses.

Free up capital

Initial investment

It’s one of the biggest benefits to leasing vs buying: you can drive away in a brand-new lease vehicle for a comparatively small upfront investment.

As a result, the tens of thousands of pounds that would have been put towards purchasing the vehicle can instead be invested elsewhere in the business.

The initial deposit required for a lease is a multiplication of the monthly lease cost.

Depending on how you want to divide up the total cost of your lease, this can be as little as one month’s payment, or as much as twelve. The following set monthly cost will then be paid on a designated date every month for a fixed term.

You can even include a comprehensive maintenance package to remove any other surprise motoring costs.

Ultimately, it’s one of the biggest advantages of leasing for businesses: greater cash flow, easier way to budget automotive costs, and a healthy balance sheet.

Total cost of leasing

The pluses of business leasing could be considered null and void if the overall cost of the least was greater than buying your vehicle/s outright.

And understandably so.

However, the positive influence of leasing on cash flow doesn’t necessarily come at greater overall expense.

Your lease costs are based on vehicle depreciation, which is set at the start of your agreement. There are costs associated with borrowing money that you wouldn’t have with an outright purchase, but because the depreciation value is set several years before your lease ends, any risk sits with the funder – not you.

And ultimately, your vehicle is going to depreciate whether you lease or buy it.

As you are only being loaned the depreciation value of the car, the interest you will be paying will be smaller too. This is where leasing differs to other financing methods like PCP, where you are financing the whole cost of the vehicle regardless of whether you go onto purchase it.

The value of leasing is apparent when you consider that the road tax (at the prevailing rate), and UK mainland delivery are normally included in the cost of your lease – though you’d have to check the specifics of your deal.

Plus, you won’t have to worry about any of the costs associated with selling the vehicle/s on as the car gets collected from you when your contracts end.

All things considered, leasing could actually save you money compared to buying and selling a vehicle over the same period.

Reduced running costs

The first few years of a vehicle’s life are known to be their most reliable.

Leasing a brand-new car not only minimises the hassle and cost associated with ad hoc repairs that older cars often need, but also the loss of income due to vehicle downtime.

And while a lease vehicle will require an annual service, it won’t need an MOT until it’s three years old.

In addition, in the unlikely event there’s a fault with your car, it’ll be covered by the manufacturer’s warranty and be fixed free of charge. Manufacturer warranty is normally three years or 60,000 miles in duration (whichever comes first), and covers most non-consumable items.

Road Fund Licence is taken care of by the funder, as is collection of the vehicle at the end of the lease term. Please note that if government legislation changes during your term lead to increased in the road tax owed on your vehicle, these costs will be passed onto you.

You can also add a maintenance package to your lease deal, which reduces the administration involved in keeping your car (or fleet) on the road.

And if all that wasn’t enough, because you’ll be leasing a new car, it’s much more economical to run when compared to older counterparts – adding a reduced fuel bill (and emissions offsetting bill too, if applicable) to the ongoing list of leasing perks. 

Great for your wallet, the world and therefore your CSR strategy.

As well as the reduced costs involved in maintenance and fuel, choosing to lease vehicles for your business could save you precious team resource due to its unmatched convenience.

Positive representation of your business

For clients

A new car can speak volumes about a company, both to staff and to prospective customers.

In whatever industry you sit, first impressions still hold a great amount of weight. And ultimately, rightly or wrongly, the vehicles used by a business are inevitably considered as a projection of the quality of service or product to expect from them.

A new lease car can be a great first impression to give to potential clients.

For staff

All businesses have a duty of care that ensures vehicles driven for work are of a standard deemed safe and fit for purpose. This is why many businesses choose to undertake company car schemes, or an electric car salary sacrifice scheme.

If your staff drive their own cars for business, this is termed a grey fleet and comes with its own set of risks and responsibilities.

A business that chooses to lease new cars for their workforce will be choosing safer, more technologically advanced and generally more aspirational cars. You’ll not only be fulfilling your responsibility as an employer, but adding a great staff benefit.

‘A happy worker is a productive worker’ holds true in this respect.

It’s important to remember that staff using a vehicle for personal – as well as business – use, regardless of how it’s funded, will be subject to BiK tax.

Enjoy discounts based on volume purchases

The leasing market is a competitive one with lots of brokers vying for your business. Not only is this great for driving down rates, but also gives you increased negotiation power.

Here at Carparison, we pride ourselves on advertising our best rates first time.

That being said, our live rates are linked to the volumes we put through both our funder and dealer partners. The bigger the order, the lower we can negotiate costs.

Businesses frequently benefit from increased discounts when making volume orders that simply would not be possible for customers opting for a personal lease.

Cons of leasing for businesses

The downsides for leasing a car through your business are tied to the contract stipulations that are consistent across other finance agreements.

Inseparable from the depreciation figures that your lease cost is based on is the excess mileage charges that apply if you go over your agreed annual mileage limit.

Equally, you’ll be expected to return the car in a condition reflective of fair use for its age and mileage. Any damage outside of the industry-wide fair wear and tear standard will be chargeable.

Finally, it’s expensive to terminate a business lease early, so it’s only suitable for businesses who can commit to the full term.

With these disadvantages in mind, leasing wouldn’t be suitable for businesses whose need of the vehicle is variable, or where the car could be subject to excessive damage.

Verdict

Leasing for businesses offers the opportunity to improve productivity and public perception while improving cash flow – and it really is as good as it seems.

Naturally, it won’t be suitable for everyone.

But those who are confident in their vehicle requirements will be hard-pushed to find a more convenient or cost-effective alternative.