Can You Lease a Car or Van if You are Self-Employed?

Self employed man and woman

Article contents:

Can I lease a vehicle if I'm self-employed?

Business leasing and access to your accounting

What income do I need to lease a car?

Business leasing or personal contract hire?

The tax advantages of leasing a car

Understanding Finance Lease

Is car leasing for the self-employed worth it?

I want to lease a brand-new vehicle but I’m self-employed – can I do it?

Often, being self-employed involves a lot of driving. Many sole-traders need a van as part of their business, and others with a small business are often out on the road meeting clients. Turning up in a battered fifteen-year-old family estate doesn’t really send the right message, but arriving in a shining new executive car or van – that’s a different story.

Image isn’t everything, despite the saying, but presenting yourself well does have a major impact on how seriously you (and your business) is taken by any customers, clients or partners.

The desire to get a brand-new car that puts you in a good light is completely understandable – and sensible. So the question still remains - can you lease a brand-new car or van if you’re self-employed?

Thankfully, the answer is yes!

Business leasing for the self-employed – access to your accounting

Getting a leased vehicle comes down to proving you are not a credit risk. If your business is established and you have an accountant, then this shouldn’t be a problem – simply apply for the leased car through your company and expect to have to present those accounts to the lessor in order to finalise the deal.

But what happens if you don’t have a history of accounts?

If your business is new or in the first few years of its life, it may be difficult to provide a strong history of accounts. You should be willing to provide whatever confirmation the leasing company asks for – this could be your bank account statements (both business and personal), what company accounts you do have, and any other proof of capital and debt.

In both cases, you will also have to show proof of identity and address, as well as the address of the business.

Ultimately the leasing company will make a decision based on the information given to them, but if it is apparent on your books that you can afford the regular monthly payments then there shouldn’t be any further hindrance to your lease going ahead.

What income do I need to lease a car?

If you are leasing the car through the company, then your personal accounts and effective salary are likely to be less important than the company accounts – the finance company are going to want to see that the company bank account has the money needed to cover the cost of the lease prior to other outgoings (such as your salary payment or drawings).

Should your accounting show that the differentiation between the company accounts and your personal salary are less clear (as is often the case with sole traders) then it will be important that you can show an ability to comfortably pay for the lease while taking into account your other regular household outgoings.

Someone on £20,000 p.a. with no family and minor outgoings is going to be more financially-attractive than someone with twice that income but paying for four dependants, for example.

Should I lease through the company or look at personal contract hire?

If you are unable to lease a car through the company, then you may want to look at personal contract hire. In this case, you would be assessed on your credit rating like any other individual. Depending on the length of time you have been self-employed for, your credit rating may not be substantial enough to support a finance agreement of this size and you may find yourself being rejected. If this is the case, then give us a call at Complete Leasing and we can discuss short-term options for personal leasing with bad credit.

There are many advantages to business car leasing over personal leasing, however, especially if your company is VAT registered.

What are the tax advantages of leasing a car when self-employed?

VAT offsetting

If you are VAT registered, then you can offset 50% of the leasing VAT. This increases to 100% if you’re leasing a van.

Tax return

Your leasing payments are a regular cost to the business that you can claim back against your tax return. The exact amount depends on the emissions of the vehicle – low emission cars (CO2 emission below 100g/km) allow for a 100% offset, whereas cars with higher levels of CO2 emissions are allowed an 85% offset.

Are there other financial advantages to self-employed car leasing?

An ‘off balance sheet’ asset

Leasing your car means it is an ‘off balance sheet’ asset. This means that it does not affect your business accounting when looking at future credit and will not affect your business ability to get credit elsewhere. This can be a huge advantage when compared to buying a car outright for your company, where in addition to the other problems of car ownership, you also have to raise credit for a large financial commitment that will hinder future opportunities for credit.

Regular payments for budgeting

When you lease a car, especially if you opt for an additional maintenance package, you lower your risk of having any sudden surprise payments (for repair, for example) and instead combine the expense into a simple regular low monthly payment. This aid to long-term budgeting is considerable and is one of the reasons for choosing leasing over other car finance options for small businesses and the self-employed.

Road tax

It may seem minor, but your leased car will have the vehicle excise duty (road tax) paid as part of the lease, freeing up that additional expense from your company outgoings.

My company needs me to have a van – what are the differences between van and sole-trader car lease?

Because using a van for personal use isn’t considered by the tax office, 100% of your VAT can be offset (rather than 50%) for a car.

Additionally, however, it is possible to lease a van on a type of lease known as a finance lease. This differs from standard business contract hire in a number of ways.

Understanding finance lease for van leasing

A standard business contract hire agreement requires that at the end of the contract term, the vehicle is returned to the leasing company in a state of good repair and any damage beyond fair wear and tear, plus any excess mileage, is charged as a penalty.

For some people who use their van regularly, this can lead to a certain level of apprehension – a van, especially one that’s used daily and loaded with tools and equipment, can suffer a greater level of wear and tear and the resultant penalty fees can be considerable.

Finance lease is a different type of lease agreement, where an agreed final balloon payment is set and then the asset (in this case, the van) is sold to a third-party at the end of the lease term. The money gained from the sale is then used to cover the balloon payment and the lessee (the person who leased the van – you) must either pay any shortfall or gains the benefit of any equity.

Through this system, any extra mileage or wear and tear the vehicle has suffered will be reflected in the end sale value. Essentially it is still paid for by the lessee, but on their terms rather than as a penalty by the finance company.

Should the lessee wish to continue the lease for another year, then this is arranged with a minor one-off ‘peppercorn’ rental payment (typically equal to a single month’s lease).

Through finance leasing, the lessee retains ownership of the vehicle and this it is an ‘on balance sheet’ asset, rather than off.

Examples of finance lease

Example 1

You take out a finance lease agreement for a van worth £20,000 and an agreed final balloon payment of £12,000 after three years. The monthly payment is £220 with an initial deposit of £660.

After three years, you have paid £8,360 (because it is a 3 + 35 contract) and done a lot of travel in the van. It sells for only £10,500 leaving you with £1,500 to pay as a final balloon payment.

Example 2

You take on a finance lease agreement for a van worth £15,000 and an agreed final balloon payment of £9,500 at £150 per month for three years (initial deposit £450).

After the three years you have paid £5,700 but treated the van well. You ask for another year of lease which is agreed for a single payment of £150. After four years, you have paid a total of £5,850 and you choose to end the contract. The van is sold for £10,000 and you are given £500 in positive equity.

Is car leasing worth it for the self-employed?

If you need a car as part of your job then leasing provides a far better level of support, worry-free driving and ease of accounting than buying a vehicle outright. Unless you have a significant amount of free capital and want to own a vehicle for a long period to get the maximum value out of it, leasing is almost always superior to other alternatives.

If you are a sole trader in the UK, give us a call at Complete Leasing to find out how we can help you get the perfect vehicle to suit you, your needs and your budget. With a massive range of vehicles and great deals to be found in the UK, we are bound to find the right car or van for your company.

Useful articles:

Who is eligible to lease?

The Tax Advantages of Car Leasing

Can I Put a Logo on My Leased Van?

Types of Vans You Can Lease

Finance Lease

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