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Introduction to Business Car Leasing

Business leasing is an attractive way at acquiring a vehicle, or fleet of vehicles for a company. Not only are there tax incentives for businesses who do lease, but it also helps free up cashflow and has fixed monthly rentals without any hidden costs.

Business car leasing (also known as ‘Business Contract Hire’) allows companies to hire a brand-new vehicle for work purposes.

Just like a personal car lease deal, you’ll be asked to specify how many miles you intend to drive the car each year. Some businesses tend to select a higher annual mileage (i.e. 20,000 to 30,000 miles).

Business leasing explained

Who qualifies for business car leasing?

Business car finance is aimed at the following entities:

  • Sole traders: Provided you have a bank account in the sole trading name 
  • VAT Registered companies 
  • A Partnership: With 2 or more partners working in the business 
  • Limited Companies, Private Limited Companies (PLC’s) and Limited Liability Partnerships 
  • A charity, Embassy, Local or Government Authority

All of the above have business leasing eligibility and are eligible for business car finance. Other forms of business entity may also be eligible, depending upon the circumstances. In addition, your business must be currently trading and have a suitable income and profit level (these are assessed as part of the application process).

As part of the application process, you will need to provide the following documentation:

  • Your business details (business name, business address) 
  • The director or proprietor or business owner’s details (name, date of birth, marital status)
  • Business bank details (bank name, account number and sort code)

As part of your application, you may be asked to provide additional information in certain circumstances – for example, if your business is less than two years old, or you’ve previously been denied vehicle finance.

We might ask you for:

  • 3 months’ business bank statements 
  • Management accounts 
  • A director’s guarantee

What are the benefits of leasing a car for a business?

Leasing offers fixed, affordable monthly rentals which can be spread over an agreed period of time. This makes budget planning easier, while contract and mileage terms are flexible to suit your business requirements.

With low initial outlays and fixed monthly payments, leasing requires minimal capital expenditure, enabling capital to be put to better use elsewhere.

If VAT registered, your business can claim back 100% of VAT on car leasing costs every month if vehicle usage is 100% business or 50% mixed business-private usage.

For vans, the vehicles’ business usage directly translates to the VAT percentage reclaimable (e.g. 90% business use = 90% VAT reclaimable).

According to the Money Advice Service, the value of a vehicle typically decreases between 15-35% in the first year and up to 50% or more over three years.

With leasing, however, you avoid the threat of these potential financial losses, as your business doesn’t own the vehicle. Your business won’t have the often-difficult task of selling the vehicle, it simply hands back the car to the finance company.

With a business leasing contract, you have the option to change your vehicle every two to four years, benefiting from ever-improving technology, security and safety features found on new vehicles.

Short term agreements of 2-5 years means if you have a variable workforce or a changing business situation, you won’t be overcommitting.

If you choose to lease electric for your business, you are guaranteed reduced BIK rates which could save your business thousands. There are also zero tailpipe emissions meaning no road tax and no ULEZ charges.

With low running costs added into the equation, electric leasing could be a great way to get new vehicles or your business! You can read about the benefits of electric leasing here.

What are the drawbacks of business car leasing?

When signing for the business lease, you pre-agree to an annual mileage amount. If you exceed this pre-agreed mileage, you will be liable for excess mileage charges which can prove costly. 

You need to return the car in good condition and within fair wear and tear guidelines. This means you and any employees must keep the vehicle in good condition.

Any damage to the vehicle beyond the BVRLA fair wear and tear guidelines means you may be liable for damage charges. Check out our how to look after your lease guide for more information.

How do I apply for business car leasing?

If you think business car leasing is right for you, browse our range of business lease deals to choose from a wide range of vehicles. You'll need to tell us your estimated annual mileage, preferred initial rental and contract length. Road tax is included in the cost, so you don't need to worry about paying for that separately.