Business Or Personal Car Leasing - Which Is Best For Me?

Should I lease a car through my business or personally?

As a business owner or Company Director wanting to lease a car for yourself, you have the choice of either Business Contract Hire or Personal Car Leasing (Personal Contract Hire or Personal Contract Purchase). In other words, you could lease your car through the business or lease it in your personal name, and each option has its own implications, benefits and disadvantages.

Business Car Leasing or Personal Car Leasing - a question of tax

The main thing to consider when you’re thinking about whether to lease a car through your business or personally is the tax situation. If you lease a car through your business, you will have to pay Company Car Tax (or Benefit In Kind Tax as it is also known), as some of your mileage will be classed as for personal use. There is also the Car Fuel Benefit charge to take into consideration if the company pays for your personal fuel.

The amount of Company Car Tax you pay depends on your personal financial circumstances and tax bracket, the list price of the car (the P11D value) and the Co2 emissions of the vehicle. HM Revenue & Customs have provided a Company Car Tax Calculator on their website to help you work out the amount of Company Car Tax and Car Fuel Tax you would have to pay.

Advantages of Business Car Leasing

However, leasing a car through a business has real advantages for the company, which is why most companies still lease their cars via Business Contract Hire. A business can claim up to 100% tax relief on the lease rental payments, depending on the Co2 emissions of the car. Also, if it is VAT registered, it can also claim 50% of the VAT back on the car leasing payments (100% on commercial vehicles), and all of the VAT on the Maintenance element of the contract if this is included. Furthermore, all expenses associated with the business lease such as motor insurance, servicing and repairs, are fully tax deductable against the company’s profits. Please note that if the car is for business and personal use, the tax benefits only apply to the business use proportion of the expenses.

If you decide to go down the Personal Car Leasing route, the first thing to remember is that you will be making the payments out of taxed income and you will not be able to claim any of the money back. You will, of course, be able to charge the company 40p per mile (20p per mile above 10,000 miles) for all the business mileage that you travel, so you will need to keep accurate records of your business and personal mileage. Check the HMRC website for the latest information on how much you can claim per mile for business mileage.

If a business is profitable and is looking to reduce its tax bill, it would probably be better to put any Directors’ lease cars through the business, even if it means increasing the salaries of those Directors to compensate for the Benefit In Kind tax that they would have to pay.

Seek professional advice before you decide

Before you make a decision on whether to choose Business Contract Hire or Personal Car Leasing, I would advise you to discuss the question with your accountant or financial advisor, as he is usually in a good position to advise you because of his knowledge of your financial and tax situation.

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