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Ryan Darby

Ryan Darby

Ryan is the Content Marketing Executive at Carparison, keeping you up to date on our socials. He also takes the lead on our fantastic car reviews, and with his experience, is the perfect person to make sure you have all the information you need.

Business car leasing tax benefits

Business lease deals are a great option for those looking to lease a car through their business or offer their employees benefits such as company cars.

You can make huge VAT savings on your monthly payments by taking out one of our business lease deals, while they also come with a host of additional tax benefits. By leasing a car, you also free up cash flow that simply would not have been possible if you were to buy a car outright.

Having a clear understanding of the exact money being paid towards a company car each month can give business owners financial peace of mind and a hassle-free driving experience for them, their team and their fleet.

From Benefit in Kind to National Insurance, leasing a business car can come with huge tax implications, so we have compiled this helpful guide to provide you with all the information you need.

The tax benefits of business car leasing

  • Vehicle costs are kept off your balance sheet, freeing up important credit for elsewhere.
  • You can claim back 100% of the VAT on payments if the vehicle is used solely for business purposes, this reduces to 50% if used for personal journeys too
  • You can offset up to 100% of the cost against your tax bill depending on the emissions of the vehicle, for vans this is 100% regardless of emissions
  • Excess mileage and maintenance packages are service charges that you are eligible to claim 100% of the VAT back on and offset 100% of the cost against your tax bill

Things to consider when taking out a business car lease:

  • If you are offering a company car to employees, you will be expected to pay higher national insurance
  • Your employees will need to pay Benefit in Kind tax (BiK) to account for the added value of having a company car

When asked about the benefits of leasing for businesses, Ben Banks, one of Carparison's leasing experts who specialises in all things commercial leasing, said: "Leasing is a popular choice amongst businesses as it offers unrivalled financial freedom and significant tax benefits. For example, on commercial vehicles, 100% of VAT is written off and 100% of the lease payments and associated costs can be classed as an expense against your annual tax bill. For cars whose use is shared between business and personal, this is still significant but will be cut to 50%.

"Most valuable to many businesses when leasing is the reduced downtime associated with a new car or van and the fact it keeps credit lines open for investment elsewhere in the business. Businesses won’t have to predict the depreciation levels and resale values of their fleet: with a lease you can budget to the penny from the start.

"That’s without even mentioning the environmental improvements, safety innovations and pure driving pleasure available when accessing the newest vehicles on the market."

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Are business car lease payments tax deductible?  

Yes, if you are a Limited Company you can use your monthly lease payments to offset your corporation tax. If you are a Sole Trader or Partnership you can also offset your lease costs against your annual tax bill.

However, the amount you can offset will depend on the car that you lease. Your vehicle will only be completely tax-deductible if the car in question emits less than 110g/km. For vans, you can offset 100% of the cost regardless of the lease van’s emissions.

Cars that emit 111g/km or more still qualify as tax-deductible, but only up to 85 per cent of its value. A rule that was introduced in 2018 saw a 15 per cent tax disallowance placed on vehicles with higher CO2 emissions.  

Capital Allowance cannot be claimed on a leased car as you are not the vehicle owner and are not buying outright.

Can you claim back VAT on your car lease payments?

One of the major benefits that come with business leasing is the ability to reclaim VAT on your initial and monthly payments. However, this is only possible if you are VAT registered.

If you use the vehicle solely for business purposes and has no personal use outside of work, you can claim 100 per cent VAT back against your monthly cost. If your business lease car is used for personal journeys outside of work, you can claim up to 50 per cent VAT.

Another perk is that additional charges associated with lease cars or vans, classed as service charges, also have tax benefits. Excess mileage charges and maintenance packages, for example, are considered service charges. If they apply to your lease deal, you can claim 100 per cent VAT back on those charges and offset 100% of the charges against your annual tax bill.

We offer all Carparison customers the opportunity to add a maintenance package to their monthly payments. The package includes things like scheduled services, tyre repairs, MOTs and a complimentary wash and vacuum.

This allows for easy budgeting, which can be invaluable, especially in the current climate. When you agree to the terms of your lease, you will find a fixed monthly payment that suits you and if you take advantage of our maintenance package, there is not much else to take care of apart from your fuel!

We appreciate that business owners have enough on their plate, so leasing offers a stress-free driving experience.

Ben Banks Quote

Can I lease a car through a limited company? 

If you run your own limited company, you can take out a business lease deal through the company and it is a popular choice. However, if you also use the car for personal journeys you will have to pay Benefit in Kind tax, a tax placed on company cars if the vehicle will be used for personal journeys alongside work.

Many benefits come with leasing a car through a limited company, including the opportunity to lower your cooperation tax and claim back VAT.

Considerations for business leasing

Although marginal compared to the savings already discussed, if you are offering a business lease to employees as a company car, you will need to pay higher national insurance contributions. This applies to all benefits provided by a business to their staff and the increase will depend on the value of the benefits provided.

In addition to this, employees will be required to pay BiK tax to account for the additional value provided on top of their salary.

How much Benefit in Kind (BiK) tax do you pay on a leased car?

Benefit in Kind is a tax placed on company cars to recognise the financial value of having a vehicle in addition to your salary. The amount of BiK you pay on a leased business car will depend on a few different factors, including the car’s value, its CO2 emissions, and your personal income tax rate.

Although BiK can appear daunting, company car tax does tend to be cheaper than personal tax, especially on lower emissions vehicles.  

Is leasing good for company accounts?

Leasing can be hugely advantageous for businesses when compared to financing or traditional PCP deals. This is because the act of leasing a car or van does not count as a liability on your balance sheet.

You do not own the vehicle so it will not be listed as an asset to your company. This will improve your chances of potentially borrowing money in the future, especially if you are leasing multiple company cars.

If you would like to know more about our best car lease deals or business contract hire offers and how they could benefit your business, get in contact with a member of our team.