Business Car Leasing Explained
Business car leasing, also often known as Business Contract Hire (BCH), is a popular way for business owners or employees to lease a car through their business, offering some incredible benefits compared to buying a new car. We’ve put together this guide to explain how business car leasing works, who can take one out, the business car lease requirements and how it differs from personal leasing.
What Is Business Car Leasing?
Leasing a car through a business in the UK is pretty similar to personal car leasing (also known as Personal Contract Hire / PCH). If you are looking to take out a lease, you will be paying fixed monthly payments for an agreed period of time to a leasing company for a brand new car, usually for 2-4 years. You will never own the vehicle, or need to pay a balloon payment at the end of the deal. Once your deal term is up, you simply hand the car back and can take out a new lease.
For a lease contract, you decide the length of the agreement, how many miles per annum you will be driving, and how many months you would like to pay upfront for the lease. Once you spot a deal you like on LeaseLoco, you can get in touch with our leasing partners who are the suppliers of the deals and continue your application for the lease deal. They will discuss a quote and check you are eligible for the deal and that you can provide the appropriate documents to secure the lease.
We have some handy FAQs for leasing if you would like to know a bit more about the process of leasing a car.
How Does Business Car Leasing Work?
As mentioned, when leasing a car under a business, you will agree to the mileage, term length and upfront payment. Then you will pay the agreed fixed monthly payments to the leasing company while you get to drive a brand new car or van for this time. Once the deal comes to an end, you simply hand the vehicle back to the leasing company (who will usually collect it for free). Then, you can get another lease deal and be on the road again in another brand new vehicle.
You will need to organise insurance yourself for the vehicle, and also any maintenance packages as these are often not included in the business car leasing deals available. However, road tax, breakdown cover and manufacturer’s warranty are all included in lease deals, meaning more peace of mind for you.
Leasing is a great option as it allows business owners and employees to drive a brand new car every few years without any hassle of needing to sell the car or van when they want a new one. As the payments are fixed, it allows businesses to budget efficiently and free up their money elsewhere as they don’t need to put down a hefty deposit, as they would if they were to buy a car.
Differences Between Business And Personal Car Leasing
The process of leasing is almost the same between personal and business car leasing, however there are a few differences between the two:
Name on the paperwork
If you are taking out a personal lease, then you will be putting your name and information on all of the documents and agreements. However, for business leasing it will be your company’s name on the paperwork.
Documents to provide
As it is your company’s name on the lease agreement, then the information you need to provide to secure a lease will be different to personal leasing. For example, if you are taking out a personal lease you will be asked to provide your personal information and ID, and you will need to pass the appropriate checks including a credit check. For businesses, they will need to provide details about the business, as opposed to an individual, to ensure that the company can make the monthly payments.
VAT on the costs
Personal lease deals will include VAT in the costs, however through business leasing you can claim VAT back on the costs of the lease. This means that business leasing can often be significantly cheaper than personal leasing.
Why Is Business Car Leasing Cheaper Than Personal?
As business leasing is VAT recoverable, it is much cheaper than personal leasing. If you use the vehicle solely for business use then you can claim back 100% of the VAT, or if you use the vehicle for both personal and business use then you can claim 50% of the VAT back. Also, any maintenance packages or excess mileage charges are also VAT recoverable, meaning even more potential cost savings. Although, bear in mind, your company will need to be VAT-registered to reclaim any VAT on the car lease.
Who Qualifies For Business Car Leasing?
You may be eligible for a business car lease deal if you are any of the following:
- Sole trader
- VAT registered business
- Limited company
- Private limited company
- Public limited company
- Partnership
- Charity
There are also other company types that will be considered for a business lease deal, so if your business does not fall into these categories then it is still worth checking with our leasing partners if this is something they can do and if you meet the business car leasing criteria.
What Is Needed For A Business Car Lease?
You will need to provide some details about your business to secure a deal including proof of the company, bank details, accounts, proof of ID and address. Your company will also need to undergo a few checks as part of the application, and will need to pass a credit check. The funder of the deal will need to see that you can afford the monthly payments. Therefore, if you are a new business with little financial history it may be a bit more challenging to secure a deal.
There are options though, you may be asked to provide some additional information including further bank statements and potentially a director’s guarantee. You may also be asked to pay a higher upfront payment if you are a new business as this will likely improve your potential to secure a lease deal as it is less risk to the funders.