Business Leasing: The One Guide You Need To Read

Have you ever wondered why your competitors are driving around in flashy cars, whilst your team are forced to take the bus or train to business meetings?

It’s usually not down to them having more money than you. It’s probably because they’ve got hold of it through business leasing!

There are loads of reasons why businesses would choose to get a specific business lease on cars, rather than buying them outright or paying for a series of personal leases on them. The amount of money that you can save with specific business lease is obviously a key factor for instance.

Has that got you interested? Get comfortable, because here are some more facts that you need to read about business leasing.

What's Covered

Chapter 1

What is business leasing?

It needs to be said that business leasing is slightly different from personal leasing.

It doesn’t really take a rocket scientists to work out how they differ though.

Effectively, business leasing is for a lease on a car that’s being used only for business purposes. By business purposes, read anything to do with the running of the company– so trips to see clients and suppliers, general business meetings and trips to trade conferences etc.

Personal leasing is the opposite (You can follow the link below to find out more information about it). It’s for a car that’s being used for personal use– so for stuff like shopping, day trips out, and holidays.

Chapter 2

Who can get a business lease?

The basic answer to this question is: anyone who runs a business and is looking for a car to use for business purposes.

In terms of who can’t get a business lease, it’s pretty straightforward – individuals can’t get a business lease if they aren’t running a business. You’ve probably already been able to work that out though.

There are also extras associated with business leasing, like Company Car Allowances, which can blur the boundaries between the personal and business leasing even further.

Chapter 3

What type of business leasing deals can I get?

There are quite a few business leasing deals that you can choose from. They’ll usually be specific to the particular leasing company that you’ve chosen though, so I can’t really make a comment on the exact ones you could get here.

To give you an indication though, I have written a short blog that explores business leasing deals in more detail which you can read below!

Chapter 4

Company cars and business leasing

At its simplest, a company car is just a vehicle that is leased and given to an employee to use for business, and possibly some personal, use.

Some businesses don’t need to maintain a huge fleet of vehicles: sometimes just one or two cars, given directly to an employee is more efficient and better suited to the needs of the company.

It does get slightly more complicated though. Some businesses choose to give their employee a thing called a Company Car Allowance.

A Company Car Allowance is essentially money that the business gives an employee each month for them to buy or lease a car for their own use which they can also use for business. It’s an increasingly common part of employee benefits packages and it only looks set to increase in popularity in the future.

Think of it as a business effectively outsourcing the of leasing a company car themselves, direct to their employee.

The employee alone is responsible for paying the installments and sorting out the maintenance and upkeep of the car. The business just puts aside an allowance each month so that the employee can pay for the insurance, tax, fuel and general running of the car.

The employee doesn’t necessarily have to spend the money on a car either (bizarrely). If they’ve already got a car that they’re willing to use for business things, they can just pocket the cash and use it how they want.

Chapter 5

Claiming back tax with business leasing

The key benefit of business leasing is that you can often claim several taxes back on the cost of operating the car. This can help to significantly reduce the cost of maintaining a fleet of cars for your company.

If you car is pretty environmentally friendly, with emissions under 130g/km, you’ll be able to claim the entire total back. If it’s higher than this figure though, you’ll be able to get 80% of the figure back.

Cars that are used solely for business can also benefit from VAT exemptions– up to 100% in some cases. Check out the government’s advice about this for the specific details and how it might relate to your business.  

You’ll also be able to claim back the VAT on fuel in the majority of cases. If your car is used solely for business purposes, you’ll be able to claim 100% of the VAT cost back. If it isn’t, and it’s also used for some types of personal use, you’ve got three options for how you claim back VAT:

  1. Reclaim the entire VAT amount and just pay the right fuel scale charge for your vehicle
  2. Keep detailed mileage records and eclaim the fuel that you use only on business trips
  3. Don’t claim any of the VAT back

Chapter 6

Why should I try business leasing?

Here are the pros and cons of business leasing.

1. Fixed monthly instalments can be useful in freeing up cash flow

If you’re ever tried to keep on top of a business’s books, you’ll know how important cash flow is when it comes to turning a profit. You’ll be pleased to hear then that monthly payments in the case of business leasing are usually lower than other types of car finance. The extra cash that you save can help to improve the overall cash flow of your business.  

A business lease can help you to free up your finances and improve the amount of money that your business has to play with each month thanks to the fact that the monthly payments for the lease are fixed.

2. The monthly cost of your car will be fixed for the length of the lease

As I’ve kind of alluded to above, the fact that the monthly payments for a lease are fixed means that you can pretty accurately predict how much money you’ll be paying out each month for a car. In turn, this can help you come with a much more accurate business budget for the month.

The payments are fixed for the entire length of your business lease too, so that means that you’ll have that stability for at least a couple of years.

3. Your business can get access to high spec, high-end cars cheaply

Ever dreamed of your business owning a fleet of brand, spanking new Audi A3s, or glistening BMW Series 5s? With business leasing, the dream could become a reality.

Ordinarily, if you were to buy one of these cars new, outright, you’d need to stump up between £20,000 to £40,000, per car. Most business just don’t have that time of money lying around the office.

Leasing is a cost-effective way for your business to get access to some of the best cars that are on the market whilst they’re completely new and unused.

The reason why leases are cheaper than credit is down to the nitty gritty of what you’re actually paying off. When you buy a car on credit, your monthly payments are going towards paying off the total value of the car. With leasing however, your monthly payments instead only pay off the amount of value that the car’s expected to lose whilst you’re leasing it. This works out significantly cheaper than buying a lot of the time.

4. Your business doesn’t have to deal with the risk of the car depreciating in value

Business leasing completely sidesteps one of the worst problems that businesses face when it comes to buying a fleet of cars– the fact that they depreciate in value over time.

With a business lease, you effectively just rent the car for a couple of years and then return it to the finance company or dealer at the end of the contract. Your business never owns the car, so it never has to worry about how much value it’s losing or what value it might fetch on the market!

5. Offering your employees a company car can be a useful perk

It’s a simple fact that happy employees mean more productive employees. And more productive employees means more profit for your business. One of the easiest ways to improve the happiness of your staff is to offer them a company car.

If an employee’s line of work involves a lot of travel, it can make a lot of sense to offer a dedicated company car as part of their benefits package so that you can attract the best talent to your business – and keep them. Business leasing deals mean that offering company cars might not be as expensive as you first think. The long term benefits in terms of happy, productive and loyal employees far outweigh the initial short term cost of leasing.

Even the gesture of offering a company car says a lot about the attitude of the business towards employee welfare.

Chapter 7

Why might business leasing not be right for me?

1. Cancellation fees

One of the biggest turn offs for many when it comes to business leasing is the thought of cancellation fees.

If your business isn’t in the position to continue to pay for a business lease on a car and you want to exit the contract early, you’ll probably have to pay a cancellation fee to get out of it. A lot of businesses can be put off business leasing because of this.

To be honest though, you get cancellation fees with basically any form of credit – even for something as small as mobiles, so I’m not really convinced that this should be a big worry for companies.  

2. You won’t be able to sell the car because you’ll never own it

So, obviously with a lease contract, you’re effectively renting the car for the long term and you’ll never own it. This can be a turn off for some business owners, who want a permanent asset under their control.

Whilst you’ll save money in the short term with a business lease in terms of lower monthly payments, your business will never own the car and so you’ll never be able to potentially profit from the sale of the car.

Cars depreciate in value stupidly fast though, so good luck making a profit on a car when you come to sell it!

3. Mileage allowances

One of the main catches of business leasing is the fact that you’ll have to agree to limits to the amount of miles that you do per year in your vehicle. The leasing companies do this in order to protect the value of the car (they are effectively the owners, after all). The mileage limits are usually pretty sensible, but if your business is likely to wrack up the cross-country or trans-Europe business trips, you might have to stump up a higher rate for more miles.

4. You’ll have to get the car properly maintained and regularly serviced

Most business leasing contracts will force you to get the car regularly serviced and maintained which isn’t exactly the best if you’re the kind of business that – ahem – likes to save money and only carries out the bare minimum of maintenance on its cars.

Some contracts can stipulate that you have to get the car serviced at a particular garage in your area and some businesses can have trouble with that restriction.

5. You’ll need to return the car in a decent condition

If you don’t want to face penalty fees at the end of your contract, you’ll also have to make sure that you return the car in a decent condition.

There’s some good news and some bad news when it comes to this. The good news is that it’s relatively easy to find out the features that you need to pay attention when it comes to returning the car. The bad news is there’s quite a few of them. Luckily, most finance companies rely on the BVRLA Fair Wear and Tear guidelines, so follow these and you should be okay when it comes to returning your business lease car.