Save Money with a Business Car Lease

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When I was younger, I had a friend whose family owned a business.  I remember that they were always driving nice cars and would have a new one every year.  He told me that the cars were leased and used for the business.  That’s when I learned that there is a monetary strategy to leasing a car when you own a business.

Running a business can provide different avenues of saving money.  One of the advantages is that your profit can be written off against your expenses for tax purposes.  This allows you to make purchases and effectively lower your income.
Depending on your type of business and the amount of money that you are earning, one of your considerations for a business expense is whether you want to lease a car.  In the UK this is also known as a business contract hire:  meaning that the lease contract is tailored to the business requirements.

The option is so popular that there is a significant contract hire industry in the UK.

The advantages of leasing a car can be significant.  There are tax advantages as well as reduced administration.  Your contract can come with a maintenance agreement and can even cover a loaner vehicle in the case of a breakdown.  A contract hire is popular in VAT registered companies as well since they can claim back 50% of the VAT on the financing.

⦁    The benefits of leasing a vehicle for your business are considerable:
⦁    Rentals can lower your taxable income
⦁    VAT recoverable on financing
⦁    Tax breaks for leasing low carbon emission company cars
⦁    Maintenance packages
⦁    No issues with vehicle disposal
⦁    No depreciation risks

Of course, much of these benefits depend on your company structure.  Investing in a small business car lease makes a lot of sense for a company that is generating a large amount of profit and has a business use for a car.  However, if you are a simple freelancer working from home, it may be harder to justify a vehicle as a business expense.

While it may still be a good option for an individual to investigate leasing a car, you must be careful to weigh the advantages and disadvantages of a lease.  Remember that a lease will add to your monthly expenses and is generally more costly than purchasing a car outright if it’s entirely for personal use.  You need to be in a position to take advantage of the business tax and accounting benefits before you decide on leasing a car.

Article written by

Richard is a full time professional, husband, father and blogger juggling all the responsibilities of life and running a blog. Richard enjoys writing about life and online money matters.

One Response

  1. In most cases it is best you are in business to lease a vehicle to take advantage of tax benefits. But Benefit In Kind is also a consideration, especially in a vehicle with high CO2 emmissions. The good news is, many manufacturers are working hard to keep CO2 down and BIK.

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