Self Employed Car Lease Explained

Alasdair Cherry 8 minutes Published: 06/05/2022

With the rise of the digital age, it’s no surprise that the route into self-employment, freelancing and ‘start-ups’ is becoming a more commonly trodden path.

It’s more than likely that one of you self-employed tycoons reading this article may be wondering what your car lease options are and whether you meet the requirements for a business car lease, rather than a personal lease. 

In this blog post, we’ll look at business car leasing for self-employed workers. We’ll also identify what requirements are needed to qualify for a business lease, what your different business lease options are, as well as some of the benefits of business leasing for the self-employed.

If you're looking for information on how car leasing works aside from how it works specifically for the self employed, see our guide "how does car leasing work?" Or before you read further, determine whether a company is worth it for your business or not!

Self employed and considering a business car lease deal? You can compare car lease deals from top UK-based brokers with Lease Fetcher.

What is classed as self-employment/sole trader

First things first, let’s make sure you’re eligible to class yourself as Self-Employed/ a Sole Trader.  

When you begin the adventure of being your own boss, you’re automatically classed as a sole trader whether you’ve informed the HMRC or not. 

An individual meets the criteria for self-employment if they:

  • Own a business and work for themselves.
  • Work for multiple clients.
  • Agree fixed prices for their work with employers or clients.
  • Provide the relevant and sufficient tools and equipment to finish a job.

Do I qualify for a business lease deal?

As a sole trader, you do qualify for a business lease deal.

Qualifying for a business lease deal requires you to fall under any of the following categories:

  • Sole Trader/Self-Employed
  • Partnership
  • VAT Registered Business
  • PLC
  • LLP (Limited Liability Partnership)
  • Limited Company 
  • Charity
  • Local Authority
  • Government/Embassy

So, if you're self-employed you have every right to pursue a business lease contract. You will however, have to go through a legal process which is similar to the one you would complete if you were applying as a private individual.

We should say, however, that if you are a self employed taxi driver, you cannot lease a car. With the high mileage standard taxis do, the cars depreciate rapidly meaning taxi leasing would work out incredibly expensive so most brokers do not offer it.

You may be required to provide the following legal documentation during the process:

  • Latest set of trading accounts.
  • Bank statements from the last 3 months.
  • Proof of ID and Address.

Since you do need good credit to lease a car, you'll also have to do a car lease credit check.

Once you’ve been given the green light by the finance company, you’re good to go.

What business lease options are there?

You’ve got a few different options to choose from when applying for a business lease. 

Business Contract Hire

Business Contract Hire (BCH) is essentially the business-friendly version of Personal Contract Hire (PCH). You can find out more about how business car leasing works in our guide.

As one of the most popular forms of leasing, BCH involves paying a fixed monthly fee on the vehicle for the duration of your lease agreement. 

As the lessee, you’ll be responsible for keeping within your pre-arranged mileage allowance or you’ll risk incurring an excess mileage charge. You can arrange for a high mileage lease if you need one.

On Lease Fetcher, we only deal with business contract hire deals!

Finance Lease 

A Finance Lease works much like a BCH in terms of paying fixed monthly instalments for the duration of your lease deal, although there are no mileage or condition restrictions to worry about.

A finance lease cost is calculated using the overall cost of the vehicle, the length of your contract and the chosen end payment (balloon payment).

The balloon payment is chosen by the lessee and depends on how much you have agreed for your initial rental payment and monthly instalment fees to be.  

Once your lease deal finishes, you’ve got a couple of alternative options as to what you can do with the vehicle. You can:

  • Find a buyer for the vehicle who will pay off the remaining balloon payment. If you sell the vehicle for more than the balloon payment, you will receive the equity. If you don’t sell it for more, you’ll have to make up the remaining costs.
  • Pay a small fee (usually one monthly installment) and keep the car for another year. You will, however, have to make the final balloon payment eventually.

Operating Lease

Business Operating Leasing also works in a very similar way to BCH. The only real difference is that Vehicle Excise Duty (Road Tax) is only included for the first year of the lease agreement.

Benefits of business leasing for the self-employed

  • VAT Offsetting - If your business is VAT registered then you can offset up to 100% of the VAT, reducing the cost to lease a car or van overall.
  • Claim As Business Expense - You can write off the car lease cost as a business expense. If you're not VAT-registered, this is the primary benefit for a sole trader over a personal lease.
  • Fixed Monthly Payments - Leasing offers fixed monthly payments, which improves cash flow budgeting for business users.
  • No Depreciation Risks - A newly-bought car loses its value before you even get it home. By leasing a car the risk falls upon the vehicle funder.
  • Vehicle Excise Duty (VED) - Otherwise known as road tax, VED is usually included on all business lease deals.
  • New Vehicles - All lease cars are hot off the factory press. Leases tend to only last a few years, so you have the luxury of driving a new car and benefiting from modern, cutting edge technology.  
  • Full Warranty - You get a full manufacturer’s warranty on your lease car, and will normally cover the entire period of your lease.

Do I have to pay company car tax if I am self-employed?

You are exempt from paying company car tax if you:

  • Are the proprietor (owner) of your own business.
  • Are a partner or a small partnership.
  • A member of a Limited Liability Partnership (LLP) 

This means that as a sole trader/self-employer, you don’t have to pay company car tax because there is technically no legal difference between you and your business. 

It’s important to bear in mind that if your business ever becomes a Limited Company then you’ll have to start paying company car tax. If you find yourself in this situation, BIK rates have been lowered if you go for eco-friendly models. Company car tax on electric cars is 2% for 2022-23.

You can claim a car lease tax deduction in a couple of ways which we outline below.

What expenses can I claim if I am self-employed?

There are few expenses you can reclaim if you are self-employed and taking out a business car lease.


As long as you are VAT-registered, you can reclaim up to 100% of the VAT you pay on a business lease.

You can reclaim 100% if the car is solely used for business. This does not include commuting.

You can reclaim 50% if it's half-business and half-personal use.

Business Expense

You can write off the cost of your business lease as a business expense on your tax return.


Business expenses can rack up fast, so it’s crucial that you keep a record of all your motoring expenses that you have collected so you have proof to provide to the HMRC when you claim them back at the end of the year.

Reclaiming mileage becomes a bit more complicated depending on whether you're using a personal lease car or if it's a business lease. We'll discuss more in the next section.

Reclaiming business mileage for personal cars

If you're using a personal lease car, there are a few ways you can cover your mileage expenses for your personal car:

  1. You can independently reclaim business-only mileage expenses using the Actual Cost method or Simplified Expenses method.
  2. If you have a Limited Company, you can pay yourself a Mileage Allowance Payment (MAP) from the company, and then your company can reclaim VAT on the mileage.

Reclaiming business mileage on personal car using Actual Cost method

Calculating your actual motoring expenses is an accurate, yet tedious method of logging all your mileage over the year.

You can claim actual motoring expenses for:

  • Vehicle Insurance
  • Repairs and Servicing
  • MOT’s
  • Road Tax
  • Fuel
  • Parking
  • Hire Charges
  • Vehicle Licence Fees
  • Breakdown Cover

You cannot claim for:

  • Non-business driving or travel costs.
  • Penalty Fines.
  • Travel between home and work.

If you use your car for both business and personal purposes, you’ll need to calculate what percentage of mileage was used for business use before you claim your expenses back from the HMRC. This can be worked out by using the following calculation:

Business Miles ÷  Total Miles x 100 

Your tax-deductible expense can then be calculated by multiplying your business use percentage against your total motoring costs. 

Reclaiming business mileage on personal car using Flat Rate method

Claiming expenses using the flat rate for business mileage covers the whole cost of buying, running and maintaining the vehicle which makes you ineligible to claim capital allowance.

You’ll still need to keep a note of how many business miles you travel so you can provide the HMRC with your annual mileage. You will need receipts.

The current flat rates for vehicles are 45p/mile for the first 10,000 miles and 25p/mile thereafter.

It’s important to realise that once you start using the flat rate for a vehicle, you can’t switch to the actual cost method. You can, however, switch from actual cost to flat rate.

Reclaiming VAT on business mileage if using Mileage Allowance Payments

If you are self-employed but run a Limited Company, you can pay yourself a Mileage Allowance Payment to cover business mileage in your personal car.

You'll still need to record and keep evidence of your business mileage.

Your Limited Company (if they are VAT-registered) can reclaim VAT on the fuel portion of the mileage expense. This is worked out using Advisory Fuel Rates. The calculation is as follows:

(Advisory Fuel Rate x Business Miles) 6 = Amount You Can Reclaim.

It is divided by 6 since AFR includes VAT @ 20%, so 20/12 = 6.

Reclaiming business mileage for Company Cars

If you are using a business car leased by your company, you can reclaim mileage based on the Advisory Fuel Rates.

Your company will take responsibility for the expenses of the vehicle maintenance, and so on.

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If you're on the hunt for a great business leasing deal as a self employed worker, then you're in the right place. Lease Fetcher compares lease deals from leading UK brokers to make your search easy.