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Is Leasing a Car a Good Idea for Your Business?

Feb 20, 2022 | NEWS | 0 comments

Simply Leasing Collage of car manufacturers

We are delighted to announce that Simply Leasing will be sponsoring our fifth event of the 2022 tour at Manchester Golf Club.

Simply-Leasing are a business and personal vehicle funding specialist, with over 30 years of experience across Private, SME and Corporate industries.

Utilising their extensive sector experience, product knowledge and business relationships, Simply Leasing provides their clients with tailored vehicle funding packages.

Simply Leasing provide pragmatic guidance to all of their customers, from individual clients to blue chip organisations.

They provide a range of bespoke vehicle funding options, including:

Contract Hire
Personal Contract Hire
Contract Purchase
Personal Contract Purchase
Lease Purchase
Finance Lease

For further information, contact a member of the Fleet Solutions Network team on 0161 697 5978 or sales@simply-leasing.co.uk

Is Leasing a Car a Good Idea for Your Business?

Business man leaning against his leased car

Depending on your business requirements and whether you are a sole trader, partnership, limited or public limited company, leasing cars or vans is the most popular way to drive brand-new vehicles for various work-related purposes.

Leasing a business car or van can improve the company’s cash flow and offer minimal capital expenditure, so leasing often works out as the most cost-effective option.

Read on to see a breakdown of the key things to consider when leasing a car or van to see if it’s the right fit for your business.

What Is Business Car Leasing?

Business car leasing, (or Business Contract Hire – BCH), allows your business car access without the responsibilities of outright ownership. This type of car finance is a contract deal. It allows your VAT-registered business to pay agreed monthly fees to lease a car for a set period, before eventually returning it.

Exchanging car keys at the end of a lease

It works in a similar way to a personal contract hire (PCH) policy, but it is specifically designed for companies.

It is common for businesses to sign up to a BCH agreement for their vehicles, be it for one car or van, a few vehicles or a large business fleet – it works out as our most suitable form of leasing for business owners. The contract term is flexible, and is usually anything between one and four years, depending on what the business owner requires.

Throughout this term, the company never has ownership of the vehicles, so when the contract finishes, the vehicles will be returned to the leasing company.

Following this, you can then decide whether you want to extend the contract or get a new model and start a new one.

What are the advantages of leasing a company car?

Cost savings, tax benefits, and the perks of driving a new car or fleet every few years are just a few of the reasons why business car leasing is becoming a popular choice for companies and their employees.

If you’re debating whether to lease a car for your business, read on to learn about the main advantages of doing so.

Lower Costs – Improved Cash Flow

Most business-owners seek to drive an impressive, luxury vehicle in order to make a good impression when meeting prospective clients and business partners. These, however, are expensive to purchase outright.

However, buying a car outright can see your cash flow take a big hit. On the balance sheet, this would stand out as a large liability and could also have an effect on your ability to secure more lines of credit if needed.

Choosing to lease instead of buying a vehicle, means lower maintenance and road tax costs, and often the monthly payments are lower than loan repayments. You also get all the benefits of running a brand-new vehicle. This includes full manufacturer’s warranty cover, which typically lasts for two to five years.

This not only means the balance sheet will look healthier, but your cash flow won’t be stretched by paying out tens of thousands of pounds. It frees up the money that would’ve been spent on buying the car to be used on other important areas of the business to help it grow.

Protection From Depreciation

Average car depreciation graph over 20 years

Finding the large amount of money needed to pay for a brand-new car is difficult enough. But it’s even more disconcerting that the value of the vehicle will only ever go down, which means when you come to sell it, you never reclaim its real worth.

When you lease a car, however, the residual value at the end of the lease can lower your costs. At the end of the lease, you will walk away without any financial penalty if you have opted for a closed lease.

Reclaim Costs Through Corporation Tax

Business leasing can provide considerable tax benefits. With a car lease, you can claim your monthly payments as a business expense. This means you can claim back up to 50% of the tax on the monthly payments of your lease, up to 100% of the tax on a maintenance package and, depending on the vehicle’s CO2 emissions, costs of leasing can be deducted from taxable profits if the vehicle is considered a company car.

Cars with a CO2 output above 130g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the business’s taxation, for contract-hired cars with a CO2 output of 130g/km or below, there is currently no disallowance.

Simply leasing will reclaim the VAT on the original purchase, which will reduce your monthly rentals (which are + VAT). Contract hire is a very popular choice for VAT registered companies as they can claim back 50% of the VAT on the finance element for cars and generally 100% for commercials (subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme).

Usually Cheaper Than Personal Leasing

Securing a business lease deal is usually a cheaper option than a personal lease. This is because of the VAT breaks that are available.

You must be VAT registered to be able to take advantage of these perks. If you are, this means you can claim back at least 50% of your initial and monthly costs as stated above. This concession is based on the assumption the car will be driven equally for personal and business use.

100% can be claimed back if you can prove the car is used purely for the business and left on the company premises overnight and at weekends.

Take a look at Simply Leasing’s wide range of cars/vans and switch from ‘personal’ to ‘business’ to see how much you could save.

Is Leasing a Car a Good Idea for Your Business? | Simply Leasing

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