How do you get a business lease car?

This guide covers everything you need to know about getting a business car lease, making it easy to drive a new car without the hassle.

Business leasing, or Business Contract Hire (BCH), lets you drive a new vehicle every few years for work purposes. It’s like personal leasing, except cheaper as VAT-registered businesses can claim back at least half of the tax.

So, looking to drive a brand-new vehicle every few years? This guide will walk you through how to get a business car lease.

What is business car leasing?

Business car leasing allows businesses to access vehicles without the need for ownership. Instead of purchasing a car, you enter into a long-term rental agreement, usually lasting between two to four years. During this time, you make fixed monthly payments and return the vehicle at the end of the lease.

How does it work? First, you choose a vehicle that suits your business needs, whether that’s based on size, fuel efficiency, or type. You then agree on the lease terms, such as the duration, mileage limit, and monthly payments. The mileage limit is typically set based on how much the vehicle will be used for business purposes.

At the end of the lease term, you return the vehicle. You can either lease a new vehicle or choose not to continue the agreement. Some leases may also include maintenance and servicing packages, helping to reduce the burden of upkeep during the lease period.

Who qualifies for car business leasing?

To qualify for a business car lease, your company must meet certain criteria. These criteria vary slightly between leasing providers, but generally include:

Type of business

Your business must be a legitimate, registered entity. Finance providers will expect the business to be one of the following:

• VAT registered companies
• Sole traders with a bank account in the sole trading name
• Partnerships with two or more partners working in the business
• Public limited companies (PLC)
• Private limited companies
• Limited liability partnerships (LLP)
• Charities

Some leasing companies may also work with non-VAT-registered businesses, but being VAT-registered often offers additional benefits, such as claiming back on VAT on lease payments.

Creditworthiness

Leasing companies will check your business’s credit to assess its ability to meet monthly payments. Businesses with poor credit may face difficulty qualifying but could still secure a lease with a larger deposit or a co-signer.

History of the business

Leasing companies typically require businesses to have been operating for 1-2 years. Start-ups may qualify but may need to provide documents such as forecasts or personal guarantees to prove financial stability.

Financial stability

Leasing companies will often ask for financial records, such as tax returns, bank statements, or profit-and-loss statements, to assess your business’s ability to afford the lease payments.

Use of the vehicle

The car must be mainly used for business, with limited personal use, and should be used for activities like meetings, deliveries, or client visits.

Deposit or initial payment

Business leases often need upfront deposit or initial payment, ranging from one to several months of the lease’s total cost, depending on the vehicle’s value and lease term.

Pros and cons of business car leasing

Much like any financial endeavour, leasing a car through your business comes with both pros and cons.

Pros of business car leasing

• Business car leasing typically involves lower monthly payments compared to buying a vehicle outright, making it more affordable for businesses.
• VAT-registered businesses can reclaim at least half of the VAT on lease payments, reducing the overall cost of the vehicle.
• Leases generally last between 2 to 5 years, allowing businesses to upgrade to newer models without long-term commitment.
• Unlike owning a car, businesses aren’t responsible for the vehicle’s depreciation, which means there’s less financial risk.
• Many leases include maintenance and servicing – this ensures the vehicle remains in good condition without unexpected repair costs.

Cons of business car leasing

• Business car leases come with annual mileage limits – exceeding these limits can lead to costly excess mileage charges.
• Ending a lease early can result in hefty penalties, making it a less flexible option if your business needs change unexpectedly.
• Leasing agreements often include fees for any excessive wear and tear on the vehicle, which can add up if the car isn’t kept in good condition.
• Leased vehicles must be returned in their original condition, meaning you can’t make custom modifications, which means your business won’t be able to personalise the vehicle.
• You will need to pay company car tax, also known as Benefit in Kind (BiK) tax on the personal use of the car, which is calculated based on the car’s value and its CO2 emissions.

Why is business car lease cheaper than personal?

Business lease deals are usually cheaper than personal leases as you can claim back 100% of the VAT on monthly payments and any maintenance agreements, as long as the car is used solely for business. To qualify, you must be a VAT-registered company. This makes it cheaper than a personal contract hire (PCH), where VAT is always included in the price.

If the car is used for personal use as well, you can only claim back 50% of the VAT on the monthly payments. To claim 100%, you’ll need to track the car’s mileage to prove it’s used exclusively for business. When personal use is involved, the personal mileage must be deducted from the total, as it will be subject to VAT like a personal lease.

Should I lease a car through my business?

Business car leasing is a good idea if you want to drive a new car every few years while maintaining your cash flow. You can also save money by reclaiming up to 100% of your VAT costs and take advantage of low company car tax rates. If it’s used for personal mileage too, you can claim back 50% VAT.

However, only you know whether buying or leasing a business car is right for your business. Factors such as mileage, tax arrangements, type of car, and whether it’ll solely be used for business purposes, will help you make an informed decision.

Business car leasing explained FAQs

How long do you have to be in business to lease a car?

Most finance providers prefer businesses to have at least two years of trading history to be eligible for a business car lease. However, new businesses can still apply with sufficient evidence of financial stability and affordability.

Can I get a business lease car as a sole trader?

Yes, sole traders qualify for car business leasing agreements as they fall into the eligible business categories.

Can anyone drive a business lease car?

Multiple drivers can use the same business lease car so long as they are covered by insurance. The person on the leasing agreement is responsible for giving permission to other drivers.

Are business car lease payments tax deductible?

Yes, business car lease payments are tax deductible for corporation tax purposes. However, these payments are not fully tax deductible if:

• The car has CO2 emissions of over 110g/km.
• The rentals aren’t evenly spread over the life of the lease.
• The lease has clauses that may allow the company to own the car eventually.

Car change? Carwow!

Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.

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