The Tax Advantages of Car Leasing


author image - crispin

By Crispin O'Toole-Bateman

on Wednesday 27 February 2019


English money

Tax advantages of leasing a car for business

There are a lot of reasons for leasing a car, whether it’s business leasing or personal contract hire.

The advantages range from the sheer thrill of driving a brand new car through to the reassurance of a low, regular monthly payment to help with budgeting, but there is one benefit that is often overlooked: the tax advantages of leasing a car.

Is leasing a car tax deductible?

In its simplest form, the answer to this question is yes. Whether you are a self-employed businessman or a larger corporation, your yearly tax bill with HMRC can be greatly reduced by offsetting your company cars.

Why? Because when you lease a company car (or van) you don’t own it, you technically rent it and that’s an ongoing expense. With a van lease, 100% of tax is deductible and you are able to claim it all back (as long as you meet all the critera). With a car, the standard rate of tax deduction is 50% of the business contract hire value. This is because the government assumes (usually quite rightly) that you are going to be using the car for personal use half of the time, so it only allows you to claim for the business half.

If, however, you can prove that you never use the car for any personal mileage – because it remains on company property and is used as a pool car during business hours, for example - then you can claim the entire 100% tax offset on the leased car.

Better books – another leasing benefit for business owners

Being able to obtain credit is hugely important for many businesses, and if you stretch yourself by buying a fleet of cars through traditional means then you will show an enormous level of liability on your books.

Imagine ten cars purchased through borrowing at almost £30,000 per car – that’s a fleet cost of more than a quarter of a million pounds and enough to put most small and medium businesses out of the range of future credit for years.

Turn to fleet leasing and you’ll have none of that on your company accounts and you can use that remaining credit where it matters more.

Service charges – the hidden tax benefits of leasing a car

Once you return your lease car, you may find yourself having a bill for additional mileage, wear and tear (if you exceed the guidelines) or other minor fees. It’s during moments like this that you might wish you had opted for a larger mileage estimate at the start when setting up the contract, especially if you are a sole trader concerned about car leasing tax.

But no! When leasing a car through your limited company or as a sole trader, these additional costs come under the umbrella of ‘service charges’ which are, as one might expect, a 100% offset against annual taxes.

So rather than the excess mileage costs being a huge headache, they get absorbed neatly into your yearly tax offsetting.

Is it better to lease or buy a car for tax purposes?

There are other tax implications of a company car. Due to the nature of it being provided as a perk for your employees, you (as the business owner) will be responsible for a higher level of National Insurance as a consequence.

The exact amount depends on the company car you lease and its value, but it is unlikely to make the other lease car tax benefits less of an enticement!

How can Complete Leasing help?

We are experts on all aspects of car leasing, both for business and personal use. For information on anything from car lease tax deductions for the self-employed to calculating the VAT benefits on a large van and car fleet leasing agreement, give us a call today! Alternatively, feel free to send us a message via our Instagram or Facebook page.

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