Is it cheaper to lease a car through a limited company? It’s a question we’re often asked, but the answer isn’t quite so straightforward.
Leasing a vehicle in any shape or form can save you money and improve cash flow by taking the up-front costs and spreading them out over a contractual period. It also takes away the worry of depreciation.
But is there any benefit to doing so through your limited company?
The advantages and disadvantages of leasing a car through a limited company
Some of the benefits of leasing through a company include VAT relief and (sometimes) cheaper car tax, depending on the vehicle itself and how it is used.
For example, leasing a vehicle through a VAT-registered company allows you to claim back 50 per cent of the VAT on monthly payments and up to 100 per cent of the VAT on the maintenance agreement. In some cases, the cost of your lease payments can also be deducted for Corporation Tax purposes.
Lease hires are also considered “off balance sheet”, meaning the financial liability doesn’t need to be declared on the company’s accounts.
However, if you’re using the car for personal journeys, including commuting to and from work, car tax is a consideration. The amount you pay is based on the emission score of your vehicle, the P11D value of your car, and your personal tax bracket, meaning it is worth shopping around for a low emission or electric vehicle to reduce the overall cost.
Car tax can also be reduced if you only drive the car part-time, or if you pay towards the cost of the vehicle.
Do note that if the business pays for the fuel used for personal journeys, you’ll need to pay tax on this separately. For more information about tax on company cars, visit the HM Revenue & Customs (HMRC) website.
Leasing a company van or pickup through a limited company
The tax regime for company commercial vehicles is far simpler. Depending on your tax bracket, you’ll have to pay between 20 and 40 per cent on £3,430 – the current fixed rate of tax. HMRC has more information about this here.
Leasing a car personally
Now that we understand the financial implications of leasing a car through a limited company, let’s compare them to the pros and cons of leasing a car personally.
The two major advantages of personal leasing include not having to pay company car tax, while Vehicle Excise Duty (or road tax) is sometimes included in the lease.
You can also claim back mileage for any trips made in the vehicle for purely work purposes (again, this does not include commuting to and from work) – find more about the rates here.
However, you won’t benefit from VAT or Corporation Tax relief.
As we said, the answer to “Is it cheaper to lease a car through a limited company?” isn’t so simple.
Generally, a more economical vehicle (one that has low emissions) will be cheaper to lease through a company, but it’s not a rule of thumb.
For the best answer, speak to our experts. We’ll be happy to break down the costs, help you pay any tax due, and save you money.
For more information, contact our expert team today.