Guide To Business Car Leasing & Tax
Business leasing is an increasingly popular way for businesses to get a brand new car or van. Through fixed low monthly costs and the simplicity of the process, businesses can manage their cash flow better and free up their time and money to spend elsewhere. The car leasing tax benefits are also a key reason that more and more businesses are making the move to leasing.
What Are The Tax Benefits Of Business Car Leasing?
Company accounts
Any car lease payments will appear ‘off balance sheet’ and won’t appear as an asset or liability on your business balance sheets. This can be a great thing to make your company accounts look stronger to investors when looking for credit. Due to this, your business may be able to apply for more credit lines if your car is a lease as it is not seen as a huge liability.
VAT recoverable
One of the best car leasing tax benefits is that you will be able to claim VAT back on your monthly payments, saving you a significant amount of money. You can claim 50% of the VAT back if your vehicle is used for both personal and business use, or you could claim 100% of the VAT if you use the vehicle solely for business use. Any excess mileage charges (if you do go over your mileage amount) and maintenance costs are also 100% VAT recoverable. For this reason, if you think you may slightly go over a certain mileage, it may be more cost-effective to pay the excess mileage charges instead of paying for the higher mileage amount.
Bigger savings with electric vehicles
If you have a company car then you will need to pay a Benefit in Kind (BIK) tax charge. This tax charge depends on the vehicle’s value, your earnings and also the CO2 emissions of the car or van. That said, the Government introduced tax rules so that electric vehicle company cars will not need to pay any BIK tax. This is another huge tax saving that can be gained from business car leasing.
How Does Company Car Tax Work?
A company car is a great incentive where your employer provides you with a vehicle to use as a benefit on top of your annual salary, usually to be used for both business and private use. As this is on top of your annual salary, the government places a tax on company cars, known as Benefit in Kind (BIK) tax, that you will need to pay. If the company car scheme includes fuel then you will also need to pay tax on this fuel allowance.
What Is Benefit In Kind (BIK)?
This is the company car tax mentioned above that you will need to pay if you have been lucky enough to get a company car through your business. The company car has monetary value attached to it if you are using it for private use so the car is named as a ‘Benefit in Kind’.
How Are BIK Rates Calculated?
This BIK rate for a company car will be calculated using a number of factors:
- CO2 emissions of the vehicle
- Your earnings
- The P11D value (market price) of the vehicle
Using these values, the BIK rate can be worked out in a calculation where you multiply the P11D value by the CO2 emissions band percentage and multiply this by your personal income tax band percentage.
Although, it is much easier to head over to the HMRC tax calculator to get this figure quickly than to calculate it yourself.
The great news is that, as the government is striving to encourage people to use electric vehicles, they have introduced a 0% BIK rate for all electric vehicles and low-emission vehicles. This means that if you opt for a business electric car lease, you won’t have to pay any company car tax – meaning even more savings for you!
Are Business Car Lease Payments Tax Deductible?
Yes! For personal lease payments, the amount you pay is inclusive of VAT. However, one of the biggest car leasing tax benefits for business leasing is that you can claim VAT back on the lease payments as mentioned previously (claiming 100% of the VAT if the vehicle is solely used for business or 50% for personal and business usage).