Should you lease a car personally or through your business?

Years ago, the thought of doing anything else other than purchasing a car would have been questioned.


However, in this day and age, it seems society is moving away from purchasing vehicles outright. This is down to the more flexible options available such as, leasing a car, which has become increasingly popular.


These personal contract hire deals are nothing new to society, giving individuals the ability to drive away in a flashy new car by simply just choosing their annual mileage and length of mileage, avoiding the instant, nasty depreciation that often results from buying a brand new car outright.


It seems businesses have followed the trend, leasing fleets of vehicles to their employees through company car schemes. You’d be surprised by the number of small businesses and sole traders that also opt-in to lease a vehicle for business purposes. Leasing a vehicle can be done personally or through business, but which is better?


Leasing through your business


Most business owners just assume that leasing a car through the business will be the most ‘pocket-friendly’ for driving away in a new car.


Why? Well, lease deals for business users are typically more affordable, due to the fact if you’re leasing through a company that is registered for VAT, 50% of the VAT from the monthly payments and maintenance agreement can be claimed.


For example, if the car you are leasing costs £250 a month, you can make savings of £50 a month by leasing through your company that is VAT-registered.


Of course, you will have to pay company car tax, but it isn’t at as expensive as personal car tax in many cases, which means savings are to be made.


The way company car tax is calculated is by using the CO2 your car emits, the P11D value of your car and your own personal tax bracket. If you would like to save the amount of tax you’ll pay, this can be done by driving an inexpensive car which is also economical.


Want to lease a pickup or a van? The company car tax amount you will have to pay is worked out using the following fixed rate, instead of using the P11D value and CO2 emission. The fixed rate for the tax years 2019/2020 is £3,430. Depending on your own personal tax band, you will end up paying either 20% or 40%.


For cash-flow, the benefits of leasing a car are the fact that your money isn’t tied up in an asset that is only going to end up depreciating in value in years to come.


Also, an attractive benefit to business owners with leasing is the fact that the financial commitments are ‘’off the balance sheet’’. Meaning the finances don’t have to be included in your company’s accounts.


What about leasing privately?


So you’re looking at a personal lease as opposed to leasing through your business, this can come with many benefits to enjoy which you wouldn’t get from a business lease.


Firstly, the car can be used for both personal and business purposes, without having to work about racking up company car tax. Leasing a car through the business means you will have to pay company car tax when you use it for personal journeys, which can sure add up with all the journeys to and from work.


If you were looking to avoid company car tax, you would need to leave your car at your workplace overnight and THEN use a personal car to get to and from work.


But, if you do lease a car privately you won’t have to pay company car tax, but this means you will have to pay the VAT in full instead of being able to claim it back through the business.


Leasing privately will mean you’ll have to keep records of your business mileage so you can claim mileage expenses through your business (45p per mile for the first 10,000 and 25p per mile after this).


One of the most attractive things that come with leasing a car personally is the fact that you can drive away in a brand new car every 2 or 3 years.


It’s great because you don’t need to be worried about an asset that’s decreasing in value as time goes by and miles get ran up, this is the car leasing company’s problem to worry about.


Of course, with leasing a car you will tend to find that you can find a much nicer model because cars that hold their value, premium brand cars, tend to make


Leasing a car personally also means the worries of CO2 missions disappear, meaning that the sports car you wanted is a definite possibility, which would have been highly unlikely if you leased it through your business.


So what should you do?


Like everything in life, leasing cars has its pros and cons whether it be private leasing or a business leasing you go for, it all depends on what you are looking to get out of your car.


If you want that fancy sports car that has a high P11D and emits a whole lot of CO2, then personal leasing will be a better option for you as you will avoid paying a lot of company car tax.


But, if you’re interested in electric or hybrid vehicles, then it would definitely make more sense to lease through your business due to the fact you’ll pay less company car tax. Not only that but you will make extra savings from claiming back the VAT.


If you’re set on leasing a vehicle through your business but high CO2 emissions and P11D are a worry to you, a van or pickup could be a more viable option as this means the tax you’ll pay is fixed regardless of the vehicle you choose.


There are benefits to either option but the choice of whether you should lease private or through your business all comes down to what you want from your car.


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