Should I Lease A Car Through My Limited Company Or Personally?

Alasdair Cherry 5 minutes Published: 09/12/2021

Leasing a brand-spanking new car can be a very efficient and cost-effective way to get yourself on the roads.

A common dilemma we often hear is people debating whether they’d benefit more from leasing a car personally or through their limited company. 

Unfortunately, it’s a little bit more complex than that, and there is no obvious answer. The most suitable option will be determined by your own personal circumstances.

The process of how car leasing works is similar for personal and business lease deals - you need to provide certain information and go through a car lease credit check. You can tailor your contract in the same way for both, adjusting the car lease length and opting for a high mileage lease if you need one.

At the end of the day, it all boils down to what option will save you the most pennies.

In this article, we will explore the two car leasing options in depth. We’ll also identify the pros and cons of both alternatives which will hopefully aid your decision-making process. If you are self-employed, please see our self-employed car lease post too.

Slash business expenses by finding a business car leasing offer with Lease Fetcher. Or if you decide to take out a personal car lease deal instead, we are here to help you with all your car lease comparison needs.

Leasing through a Limited Company 

When you lease a car through a limited company for both business and private use, there’s one detail that is set in stone - company car tax.

There’s no getting away from it. If you’re an employee that uses a company car for private use, it’s a legal requirement from HMRC that you pay benefit in kind tax for the benefit you are receiving through the car.

The BIK rates you have to pay depends on the following:

  • Your vehicle's CO2 emissions.
  • The P11D value of your vehicle (the list price of the car).
  • Your personal income tax bracket .

In short, the higher the CO2 levels your car emits, the higher company car tax you pay. For 2022-23, you pay 2% company car tax on electric cars, which is great news if you’re considering a hybrid lease or an electric car lease deal. 

In addition to driving a low emissions vehicle, you can also reduce the amount of company car tax you pay if you only use the car part-time.

Whilst you can't dodge company car tax (unless you're self employed), your monthly lease payments are tax deductible for corporation tax  purposes.

Can I claim back the VAT on my business lease?

If the business you are leasing your car through is VAT registered, you can claim back 50% of the VAT you pay, reducing the overall cost to lease a car

It may be an option to reclaim 100% of the VAT from your lease vehicle, but that’s only if the vehicle is being used for business purposes and not for private use, and business use excludes commuting.

limited company car lease

Leasing your Car Personally

If you’re looking to lease a car for personal use, personal contract hire (PCH) is becoming a firm favourite with keen motorists looking to get more bang for their buck. 

If you opt for a personal lease over leasing through your limited company, you will have to pay your VAT in full.

You won’t be able to claim the personal lease as a business expense, but you won't have to pay BIK tax. It's up to you to work out which is more cost-effective for you.

Additionally, if you go for a personal lease, you can reclaim your business mileage. The current rates are set at 45p/mile for the first 10,000 miles and 25p/mile thereafter.

Pros and Cons

As we mentioned earlier, there are benefits and drawbacks to both personal and business leasing - it’s all about finding the ‘Cinderella’ fit. 

Here are the more significant pros and cons of each to give you a clearer idea (hopefully) of what option to choose going forward. 

Advantages of Leasing through a Limited Company 

  • VAT Recoverable - 100% of VAT is recoverable if the vehicle is solely for business use, or 50% if the car has some private usage.
  • Write Off Lease Cost As Business Expense - You are able to write off your monthly payments as a business expense. If the car emits above 130g/CO2, you can't reclaim 15% of this however.

Disadvantages of Leasing through a Limited Company 

  • Company Car Tax - You need to pay company car tax on a car lease (unless you're a sole trader). Thankfully you can reduce this to 2% for 2022-23 by going for an electric car.
  • Reliant On Company Credit/Finances - If you think your company could run into financial hot water in the next few years, or if you're a relatively new company, a personal deal may be an easier option to get and safer since it's connected to your personal funds and not a business.

Advantages of Personal Leasing

  • Reclaim Business Mileage - You can still reclaim your business mileage if you use a personal lease car.
  • Keep Work/Life Separate - If you plan to use the car for personal use primarily and you'd like to keep your business and personal accounts separate, personal leasing affords you this.

Disadvantages of Personal Leasing

  • Pay VAT in full - Although you don’t have to pay company car tax, you will have to pay VAT in full.
  • Can't Write Off As Business Expense - You can't claim a personal lease deal as a business expense.

car lease limited company

Which has more of a Taxable Benefit?

If you’re looking to reduce your carbon footprint and drive a more economical and environmentally friendly vehicle, you’ll definitely benefit more from leasing through your business. 

Low CO2 emissions will result in cheaper company car tax. For 2022-23, it's only 2%.

You can also write off the business lease as a business expense, which you can't do with a personal lease.

If you were interested in a diesel or petrol car, you'd need to weigh up the business expense savings vs the higher BIK tax you'd pay for a business lease.

Mind made up?

Decided to lease through your limited company? Check out our guide to how business car leasing works and how to get a business car lease before diving into comparing the best business car leasing deals with Lease Fetcher! If you're a start up looking for a new business car lease, you should check that out too.

If you want to go down the personal car leasing route, see our personal contract hire guide and what do I need to lease a car guide. Our range of personal car leasing deals is ripe and ready for putting head to head!

On your car lease comparison journey, Lease Fetcher should be your first port of call!