Short-term company car leasing is an option for businesses needing a car temporarily, such as when an employee is waiting for their long-term company car to arrive or a business travelling to a trade show or conference. Short-term car leases provide the convenience of vehicle access without committing to a long-term lease or the financial burden of purchasing a car outright.
What is the definition of a short-term business car lease?
A short-term business car lease arrangement is where a company leases a car for a brief period, typically from a few months to a year. This option allows businesses to adapt to changing requirements or seasonal fluctuations in transport needs without the upfront costs of buying a car or a fleet of cars.
Can you lease a car through your business?
Yes, you can lease a car through your business. Company car leasing enables your VAT-registered business to pay a monthly fee to lease a car for a set period before eventually returning it.
To lease a car through your business, you must meet specific criteria such as being a registered limited or public limited company, self-employed as a sole trader, VAT registered, or being an LLP, PLC, charity, local authority, central government, or embassy.
What documents are required to apply for a business car lease?
Here is a list of documents required to apply for a business car lease:
- Company address
- Registration number
- Bank statement
- Annual net income
- The last three months’ worth of bank statements and/or audited accounts
- Proof of ID and address of the company’s principal director
What are the benefits of leasing cars primarily for business purposes?
Leasing cars for business purposes offers several benefits, especially for VAT-registered businesses.
Tax advantages: Businesses can reclaim 100% of the VAT on lease payments and running costs if the vehicle is used solely for business purposes. Even if there is some personal use, 50% of the VAT can still be reclaimed.
Predictable monthly payments: Leasing provides fixed-cost motoring, improving cash flow and offering peace of mind for business owners. Budgeting becomes easier as businesses can accurately forecast their monthly expenses.
No risk from depreciation: Unlike buying a car, businesses avoid the risk of depreciation, as the lease company takes on this risk. Most cars lose 50-60% of their value in the first three years.
Minimal capital outlay: Low monthly costs allow businesses to acquire new cars without straining their capital resources, meaning no high upfront costs.
New cars and upgrades: Leasing enables businesses to drive new or nearly-new cars and easily upgrade to newer models. This ensures access to the latest technology, safety features, and improved specifications.
Does the company’s credit score or personal credit score impact when applying for a business lease?
When applying for a business lease, the business’s credit score is typically more important than the business director’s credit score. Finance providers will assess the credit history of the company and its director to determine the risk of default.
A good business credit score indicates a history of paying debts on time and managing finances responsibly, making the business a more attractive prospect for lenders.
The decision of whether to approve a business lease and the terms offered will be based on the overall financial health and creditworthiness of both the business and its director.
Should I lease a car through my business?
Whether you should take out a business car lease depends on whether car leasing works best for your specific circumstances.
Leasing a car through your business can offer many advantages, particularly when you need to maintain a professional image or require a new vehicle without tying up capital.
It works best for businesses that need access to newer models, desire predictable monthly expenses, and want to benefit from tax deductions on lease payments and VAT reclaims.
Businesses that require flexibility regarding vehicle choice may need maintenance and servicing packages to reduce administrative issues.