Should I buy or lease a car through my company… or not bother?

Written by Director Huw Moseley:

I’m often getting asked for advice by company owners on whether or not they should get a car through their company or buy it themselves.  Then there’s the further complication of leasing or buying outright.  Sound familiar?  

Leasing seems a popular option at the moment, with a bombardment of leasing companies coming through to my LinkedIn feed.  So I thought I’d write a brief blog about this particular choice.

If you lease a car:

  1. You don’t have to worry about depreciation,
  2. Road tax is often paid for, and
  3. In some deals – tyres and servicing costs are covered too.

So it’s easy to see why I often get asked by small business owners who are Directors of their own company – is it a good idea to lease a car through my limited business?

Here’s a summary of the 4 key things you’ll need to consider before you decide whether to lease a car of van through your business:

  1. Personal Tax: The lease through your business will be deemed a benefit in kind for which you will be taxed personally. Basically, HMRC works out a cash equivalent and charges 20% on this value (or 40% if you are a high rate tax payer). The exact amount depends on the make/model, engine size, value, CO2 emissions and eco-friendliness – which you can work out using this calculator – but to give you a rough idea it’s around £500 – £700 for a standard hatchback.
  2.  Corporation Tax:  The company will be able to make some savings on it’s Corporation Tax because lease payments made to your car hire company are tax deductible.
  3.  VAT: If your limited business is VAT registered, you can claim back HALF the VAT you pay! This can add up over the course of the year! If you’re paying £350 plus VAT per month through the business, you could be a whopping £35 – PLUS the 20% you’d pay personally – better off by putting the lease through your business.
  4. Class 1A National Insurance:  Don’t forget the company (i.e your company) pays Class 1A NI on the benefit.  This is currently at 13.8% and is so often forgotten by people!

So to decide whether it’s worth leasing a car through your business, you need to figure out the VAT saving minus the Personal Tax and Class 1A liability plus the potential few pounds Corporation Tax saving…

Or you can let me calculate it accurately for you using all the latest HMRC rules and regulations – and you’ll know exactly whether it’s worth your while leasing the car through your limited business… Simply drop me a line with the make and model of the car you’re thinking of leasing!

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