Business Lease vs Personal Lease

How does business leasing work?

Business leasing or Business Contract Hire (BHP) is a vehicle lease contracted through your limited company, partnership or LLP or as a sole trader.

The setup is usually the same as with a personal lease or Personal Contract Hire (PCH), consisting of an initial payment and monthly instalments.

At the end of your contract, the car is handed back to the leasing company.

Check out our comprehensive guide for more information on how business leasing works.

Can I take out a business lease?

Yes, absolutely!

The types of organisations that are typically eligible for a business lease include:

• Limited company (Ltd)
• Public Limited Company (PLC)
• Self-employed/Sole trader
• Partnership
• Limited Liability Partnership (LLP)
• VAT-registered and non-VAT-registered companies
• Charities
• Embassies

There are some exemptions on who is eligible for a business lease, such as private hire or taxi use. However, most types of companies can lease a vehicle, and it often doesn't matter how long you've been trading.

Read our how to get a business car lease guide to learn more about the process.

How does personal leasing work?

Personal leasing or Personal Contract Hire (PCH) has a similar setup to business leasing, where you lease a car for a specific period for fixed monthly payments. At the end of your agreement, you hand back the vehicle.

However, there are a few differences between the two options. For example, business leases have some tax benefits, as VAT-registered companies may be able to claim an element of the VAT back. In addition, business lease users can use the car for business and personal use. In comparison, personal lease users cannot use the vehicle for business purposes.

What’s the difference between business and personal leasing?

The main differences between business and personal leasing are:

1. Name on the lease contract

Business leasing is leasing under your business name, and personal is simply leasing it under your own name.

2. Different uses

A business lease vehicle will, of course, be used for business purposes but can also be driven for personal use. This does have tax implications – see the section on Company Car Tax further down this article. With personal leasing, you can drive the car solely for personal uses (within your agreed mileage), including commuting to a place of work.

Whether you want a business lease or a personal one, you will have access to the same range of cars and flexibility in terms of deposits and monthly repayments.

3. Claiming back VAT

Business lease users may be able to claim back an element of the VAT on the lease payments (if they are VAT-registered). They may also be able to claim it back on maintenance plans associated with the vehicle.

Why is a business car lease cheaper than a personal one?

The short answer is – VAT!

When searching for personal leases, you'll see the advertised price, including VAT, as this has to be paid on your agreement.

However, business leases are often cheaper if a company is VAT-registered, as the organisation can claim 50% of the VAT on the advertised cost. Plus, there may be VAT savings on maintenance packages.

Learn more about tax benefits in our guide to car lease tax.

What is company car tax?

If you want to use a car lease on a business contract to commute to and from work or for other personal reasons, you must pay Company Car tax. This is because this element of personal use is seen as a Benefit in Kind, and you'll have to pay personal tax on it.

Benefit in Kind (BiK) is a perk or benefit you receive from an employer that is not included in your salary. For example, a lease car supplied to employees comes under this and is subject to tax, and HMRC defines the amount.

How is company car tax (Benefit In Kind) calculated?

If you're lucky enough to be supplied with a company car, then you could be liable to pay a charge known as Benefit in Kind (BIK) tax. The amount you're required to pay will depend on three things:

• Price of your vehicle (P11D value)
• Your annual earnings
• CO2 emissions of the vehicle

As with all taxes, the rules change often.

It's important to know that the slightest change to the options on a vehicle, even something as seemingly insignificant as adding mats, can impact the amount of tax that needs to be paid. So if you're in any doubt about the rate that will apply to your chosen vehicle, contact HMRC to confirm.

Learn more about Benefit in Kind Tax for business leasing in our guide.

Should I take out a business or personal lease?

There are several considerations and benefits of both business and personal leases. So, if you're deciding on the best option, take a look at which might be more cost-effective.

Business vs personal leasing summarised

Business and personal leasing can be beneficial depending on your requirements. This means that comparing the benefits of a business lease vs a personal lease is important to see what’s best for you. Below is a table summarising what each can offer:

Shared benefits

• Drive the latest models – no limitations on vehicle choice
• Pay fixed monthly payments
• Flexible initial rental payment to suit your budget
• No need to worry about depreciation
• Upgrade your car or fleet more regularly
• Road tax included
• Tailored mileage allowance to suit your usage
• No hassle returns at the end of the contract

Check out the benefits of business leasing for more information. Alternatively, there’s a more in-depth breakdown of the different benefits and considerations for business vs personal leasing below.

Benefits of business leasing

Tax benefits can make a business lease cheaper

Securing a business lease deal can potentially be cheaper than a personal lease. This is because of the VAT breaks available for VAT-registered businesses.

Claiming back VAT

• Being VAT-registered means you can typically claim back the VAT on 50% of the lease payments
• The 50% concession applies if there’s any personal use of the car
• 100% can be claimed back if you can prove the car is usedpurely for the business (no personal) – it helps to leave it on the company premises overnight and at weekends

Claiming on maintenance

If maintenance is included in your deal, 100% of the VAT can be claimed back.

By taking out a maintenance package with a company car, you can claim everything back on that too. Learn more about leasing with maintenance and find out if your company could save even more.

Claiming tax relief on expenses

The costs of a lease are usually treated as allowable business expenses. Claiming tax relief on your expenses allows you to reduce taxable profit rather than it being a VAT benefit. Treatment can vary, however, depending on the type of business you run e.g. sole-trader or a limited company.

Considerations of business leasing

Work mileage

When you take out a business car lease, you agree to a mileage allowance. If this is exceeded, you will need to pay an excess mileage charge to the leasing company – though at Leasing Options, it could be as little as 10p per extra mile.

Benefit in Kind tax

If you use a business car lease for personal use, it’s worth considering how much you might have to pay in BiK. Rates differ depending on various factors, including vehicle emissions. So, if you opt for a zero or low-emission car, you’ll save more on tax.

Benefits of personal leasing

Many of the benefits of personal leasing are shared with business leases. However, there is something that could make this option more appealing:

No Benefit in Kind tax to pay

While personal leases don’t offer company car tax advantages, they can be used for business travel, with costs being reimbursed via mileage allowances.

Business miles paid for

While you’ll be paying for any miles completed when the vehicle is used for personal use, any business mileage can be claimed back and paid for by the business itself.

Selling the company won’t affect your car usage

When business leasing, your car is tied to the business, so if you sell, you’ll lose access. With personal leasing, it’s in your name so whatever happens to the business, you can drive it regardless.

Considerations of personal leasing

Annual mileage

Working out roughly how many miles you’ll need in your contract is essential, as going over your annual allowance will incur an excess charge.

Optional extras

Adding extras to your car will increase the monthly costs.

Can I use a business lease car for personal use?

Yes, you can use vehicles on a business lease for personal journeys. However, this usage element incurs Benefit in Kind tax as it's seen as a perk.

Learn more about business leasing in our guide to company cars.

Can I take out a business lease if I'm self-employed?

Yes, taking out a lease is possible if you're a sole trader or self-employed. There's the option of a personal or business lease. However, unless you’re VAT-registered, you won’t be able to take advantage of the savings on the lease costs.

Learn more in our guide to self-employed leasing.