Business Car Leasing guide for 2024-2025

Does your business have a requirement for vehicles, but doesn’t have the capital to invest upfront? Business car leasing could be the perfect solution.

 

What is business car leasing?

Business car leasing, also known as Business Contract Hire (BCH), provides VAT-registered businesses with access to vehicles for their employees without the need to purchase them outright.

There are various types of business car leasing options available, but they typically involve paying an initial payment at the start of the deal, and then paying agreed monthly fees for set periods of time.

 

What types of business car leasing options are available?

There are a number of different business car leasing options available, while the specific terms of any agreement will vary between providers, so you’ll need to think carefully about which deal is right for you.

However, the most common agreements will fall into one of four categories:

1. Business contract hire
2. Business contract purchase
3. Finance lease
4. Business lease purchase

 

Business contract hire

Lasting between two and four years, Business Contract Hire (BCH) is best for businesses that do not want to own the vehicle during the term of the agreement, but also at the end of the agreement.

The company will pay a fixed monthly rental fee, and at the end of the deal the vehicle is returned to the provider. This means the business doesn’t have to worry about the depreciation values or disposing of the vehicle when it’s no longer required.

With a BCH agreement VAT-registered companies can claim back 50% of the VAT on payments for cars and 100% of the payments for vans, while 100% of the VAT on maintenance costs can also be reclaimed.

 

Business contract purchase

A business contract purchase is different to a BCH in two key ways:

• The monthly finance payments are not subject to VAT.
• The company has the option to purchase the vehicle for an agreed price at the end of the agreement—this is known as a balloon payment. The company may also have the option to part-exchange the vehicle for a new one.

With a BCP your company will pay off the depreciation amount, as well as the interest calculated on the vehicle’s total value, for the duration of the agreement. If you choose to keep the car or van at the end of the agreement, you’ll also be paying the ‘guaranteed future value’ (GFV). The GFV is defined at the start of the agreement.

Like with a BCH the company will make an initial deposit, while BCPs also typically last 2-4 years.

 

Finance lease

Finance lease agreements offer businesses the option to either pay the entire cost of the vehicle, including interest, over a set period, or to pay lower monthly rental payments with a final balloon payment at the end of the agreement based on the anticipated resale value of the vehicle.

Note that, unlike with BCH and BCP, there is no option to return the vehicle at the end of the agreement. For this reason, finance lease is most suited to businesses or sole traders that wish to purchase vehicles but do not have the cash available to pay the whole cost upfront.

 

Business lease purchase

Business lease purchase agreements are designed for companies or sole traders that wish to purchase vehicles but that do not have the upfront cash.

The business pays an initial deposit and then a series of monthly repayments until the end of the agreement, at which point the business owns the vehicle.

 

The benefits of leasing a vehicle through your business

Business car leasing agreements allow businesses to gain access to vehicles without needing to have the capital upfront. In the case of business contract hire and business contract purchase, you can also benefit from access to vehicles without having to worry about depreciation values, while you won’t have to dispose of the vehicle in the future either (assuming you don’t choose to keep the vehicle at the end of the agreement).

There are also significant tax benefits of business vehicle leasing.

Limited companies are able to offset up to 100% of the payments and VAT against their corporation tax if the vehicle(s) are used solely for business purposes. The VAT paid on excess mileage or maintenance costs can also be claimed back.

Note that the emission levels of cars will impact how much tax you can claim back: 100% if it releases less than 110g/km, or 85% if it releases 111g/km or more. You can claim 100% on van leasing regardless of emissions.

 

The tax benefits of leasing electric vehicles

If your business chooses to lease electric vehicles, there are a range of further tax benefits open to you.

 

The EV Plug-in Grant

The Electric Vehicle Plug-In Grant was launched in 2011 as a way to boost EV sales, so it’s only available on agreements that end with your business purchasing the vehicle.

Only vehicles that have been approved by the UK government are eligible, while the discount available will depend on the type of vehicle.

 

Road tax exemption

Electric vehicles are currently exempt from paying road tax, although this incentive is set to end from 1st April 2025. It’s unclear whether the new Labour government would reinstate the EV road tax exemption.

 

Salary sacrifice schemes

This is an employee-centric benefit, allowing an employee to pay monthly for the use of an EV by deducting the amount from their gross salary. As a result, the employee avoids having to pay the income tax and National Insurance Contributions they would’ve paid on that gross income.Instead, they pay Benefit-in-Kind (BIK) tax, which is currently just 2%.

 

Capital allowances

Since April 2021, brand-new zero-emission EVs have qualified for a First Year Allownace, allowing for 100% of the vehicle’s cost to be offset against taxable profit.

The FYA is only redeemable in the same year as the EV was purchased.

 

Workplace Charging Scheme (WCS)

If you lease or purchase electric vehicles for your business you’ll still need to be able to charge them, but the cost of installing charge points can be high. This is where the Workplace Charging Scheme (WCS) can help, a voucher-based grant that helps to reduce the cost of installing EV charge points.

The WCS can reduce the price of an EV charge point socket by up to 75%, although it is capped at £350 per socket. The scheme also only allows for a maximum of 40 sockets to be installed per business.

 

Our accounting services for businesses

At Warr & Co we offer a wide range of business accounting services for companies of all sizes up and down the UK.

You can choose the specific services you need from us, for example bookkeeping, VAT services or auditing, or take advantage of our complete solution that covers every aspect of your company’s accounts.

If you’d like to find out how we can help, why not request a free, no obligation consultation? We’ll explore your specific needs and identify the best solutions for your business.