Leasing vs Buying a Car for Your Business

According to the British Vehicle Rental & Leasing Association, one in eight cars and one in five vans on the UK’s roads are leased. In 2018, around 1.9 million corporate cars were put through company leasing arrangements. A growing number of business owners are choosing to lease their company cars instead of buying them outright, but is it a better option?

Buying: Advantages

  • Since your vehicle counts as an asset, you can use it to pay outstanding debt.
  • No mileage restrictions.
  • Opportunity to negotiate on the purchase price.

Buying: Disadvantages

  • You have to deal with depreciation. According to the AA, a new car loses around 40% of its value within the first year alone and it may lose half of its value within three years.
  • Buying a car outright requires a large amount of capital that is then tied up in a depreciating asset.
  • As the car ages, it becomes more expensive to maintain.

Leasing: Advantages

  • Depending on your company’s VAT scheme, you may be able to claim back half or even all of the VAT against your annual taxable profits.
  • Servicing and maintenance are usually included in the monthly package, making it easier to predict the long-term cost of ownership.
  • In addition to having lower initial payments, you also benefit from a full manufacturer’s warranty cover for between two to five years.
  • Flexibility at the end of the lease period – you can usually choose between buying the vehicle, handing it back or refinancing.

Leasing: Disadvantages

  • You cannot use the vehicle to pay outstanding debts.
  • There may be annual mileage limits.
  • Monthly payments make for a more accessible option, but naturally end up being more expensive in the long run.

What Happens Afterwards?

At the end of the period when you have a company car you purchased outright, you have to deal with finding a buyer and negotiating a reasonable price for that vehicle. With leasing, you simply have to hand the vehicle back and can choose to refinance or buy it for a lower price.

So, assuming you’re opting for the leasing route, let’s take a look at why you should do it through your business instead of leasing personally.

Leasing Personally vs Through Your Business

By leasing through your business, you can avoid paying VAT on your leasing payments. You might have to pay company car tax, but this is cheaper than personal car tax. Additionally, you can benefit from better lease deals.

Consider the difference between the business and personal contract prices for this Evoque lease from Vantage Leasing. You’ll notice that a business contract is significantly cheaper than a personal one. The same website offers a number of vehicles for businesses in the UK to lease at competitive prices, so have a think about what vehicle you’d like and see how good a deal you can grab.

Considering the above, leasing proves to be a better option as your business will have more working capital to put towards growth as opposed to dumping it all on one asset that will inevitably depreciate. All you need to do is find a package that best suits your business and its financial position.