New Business Car Leasing
Reduce tax bills with vehicle leasing for startups and new businesses
A company vehicle or fleet of vehicles is essential for many businesses but they come with a lot of red tape that is difficult to unravel. Then there are the more general costs of ownership to consider. Fortunately, for clever new business owners, there are huge tax savings to be had not just from choosing the right car but also in how that car is financed.
So If you are a new business owner reading this, here’s how can you unlock these tax savings and potentially save yourself and your business thousands of pounds a year? Read on to find out…
Choose the right vehicle
We all like a nice car to drive whether its getting us from A to B or making a statement. Unfortunately HMRC take a keen interest in the types of cars you choose for your business and sometimes the cost of ownership can be eyewatering for the unwary.
Benefit in Kind (BiK) costs can potentially run into thousands a year for some cars while for others the cost is less than a couple of hundred. So what are these cars and how can you make big tax savings?
The bad news is that new V6 sports car you promised yourself is not going to make good business sense and neither are any other high performance diesel or petrol cars that emit higher levels of pollution.
So you have probably guessed that the tax savings to your business depend on the level of CO2 your vehicle emits. Basically, the lower your CO2 emissions, the more savings can be made on tax.
You can offset up to 100% of the cost of your vehicle if it runs solely on electric power. These savings increase if the vehicle is a new car which is another benefit of leasing.
The table below from shows the allowances you can claim based on the levels of CO2 emissions.
Cars bought from April 2021
|Description of car||What you can claim|
|New and unused, CO2 emissions are 0g/km (or car is electric)||100% first year allowances|
|Second hand electric car||Main rate allowances|
|New or second hand, CO2 emissions are 50g/km or less||Main rate allowances|
|New or second hand, CO2 emissions are over 50g/km||Special rate allowances|
So let’s use this example to illustrate how this translates into the real world:
John decides to lease a Polestar which runs fully on electric. He can offset 100% of the leasing cost and only have to make benefit in kind payments of £319.20 a year (26.60 per month) for a 20% taxpayer.
|List price (P11D)||£79,845.00|
|CO2 emissions (g/km)||0|
|Benefit in kind (% charge)||2%|
If John didn’t feel ready for electric and opted for even a frugal Ford diesel estate the cost would be significantly more with a BiK charge of 30% of the asking price of the car. The annual BiK bill would be a whopping £1,730.60 or £144.22 a month on top of any other ownership costs (for a 20% taxpayer).
Ford Focus 1.5D
|List price (P11D)||£28,845.00|
|CO2 emissions (g/km)||125 to 129|
|Benefit in kind (% charge)||30%|
But what if John is the kind of person who likes the best of both worlds and opts for a hybrid? Toyota is famous for its hybrid technology and fuel efficient vehicles so wouldn’t one of their mid level hybrid cars make sense? Surprisingly the annual cost Bik cost is only just over £100 less per year at £1,604.00 despite being a hybrid vehicle (for a 20% taxpayer).
Toyota C-HR 1.8 Hybrid Icon
|List price (P11D)||£29,705.00|
|CO2 emissions (g/km)||110 to 114|
|Benefit in kind (% charge)||27%|
So even though the Ford Focus Estate costs almost two thirds less than the Polestar, the extra BiK costs are more than five times more.
So by investing in the zero emission electric car, John would be saving £1,284 on the hybrid or £1,411 a year had he opted for the diesel car.
This money can then be invested in the business rather than going towards his tax bill.
In the examples we have used some of the lowest emitting vehicles to demonstrate the savings. If John was to opt for the pool of cars with emissions over 50g/km, the rates payable would rise incrementally.
If he were to buy a car with emissions over 160g/km, he would be paying tax on 37% of the list price, which for a £100,000 car, would equate to an annual tax bill of £7,400 or £616 per month (20% taxpayer).
So, in conclusion, you can make big tax savings simply by choosing a zero emissions vehicle. But this is not the end of the story…
Reduce your company tax bill even further with car leasing
If you were thinking of buying a company car you might want to consider leasing instead.
- You can claim back all the VAT on your monthly payments as long as you use it for work purposes. Even if you also lease it for personal use, you can still get 50% relief.
- Leasing a car will be cheaper than using your own car for company car drivers who pay a benefit-in-kind (BIK) tax to use their vehicle. The savings will be even higher for leasing the latest models that don’t emit CO2.
- Another lesser-known benefit is that VAT can be reclaimed on maintenance packages taken out for the car even if it is used privately as well as for business purposes.
Should you lease or buy a car for a new business?
It is important to understand the difference between leasing and buying a car and the potential advantages for your business.
Leasing a car involves renting the vehicle for a set period, typically two to four years, while buying a car involves purchasing the vehicle outright.
Leasing is usually a better option for new businesses because it usually requires less money upfront and lower monthly payments compared to buying a car.
Add to this that all but the most sought-after cars are a depreciating asset, and this is something lenders will consider in both leasing and purchasing.
So as a new business owner leasing rather than buying a new car not only avoid this depreciation by opting, you can also benefit from claiming the lease costs as business expenses.
Another common question new business owners ask us is can a new business get financing to lease a car?
Lenders like to see a strong track record before they will consider lending to new businesses which is something a startup isn’t going to have. This makes it harder to borrow money to purchase a car when taking into account the costs of depreciation but business can more easily meet the requirements of lenders in the leasing sector because the financial commitment is reduced and there will be less money to pay up front in most cases.
How to get finance to lease a car for a new business
Securing financing for a car lease is likely to be easier for a new business than attempting to get a traditional car loan. Many banks offer car loans to new businesses, but the requirements for approval tend to be strict. Typically, a new business will need to have a good credit score, a solid business plan, and a proven track record of generating revenue. If a startup meets these requirements, they may be able to secure a car loan, but this is unlikely when a business doesn’t have a strong track record.
The better option for financing a new business car lease is to seek out alternative lending options that come as part of the package when leasing vehicles. There are plenty of alternative lenders that specialise in providing financing for new businesses that need to lease a car. These lenders may be more willing to work with startups that do not have a long credit history or proven revenue streams. However, it is important to do thorough research to ensure that the lender is reputable and offers fair rates and terms.
Lender requirements for new business car leasing
Reputable lenders will have their own requirements for your business to provide evidence of its viability and ability to meet payments. Typically, as the business owner or director, you will be asked to provide the following:
- Business details - including company name, address, registration number and annual revenue.
- Director’s full name, date of birth and marital status.
- Business bank details - including name of the bank, account number and sort code.
Additional documents may be required if the business has been trading for less than 2 years. This may include the following:
- 3 months’ business bank statements and/or audited accounts
- Management accounts
- A director’s guarantee to continue paying for the lease car if a limited company can no longer meet the payments
One way that makes it easier for a new business to finance a vehicle lease is to pay a higher initial rental or depending on the company you use there may be higher interest payable.
The costs of leasing a vehicle for new businesses
With this in mind, it is important when seeking financing for a startup car lease to have a clear understanding of the costs involved. In addition to the monthly lease payments, there may be additional fees for insurance, maintenance, and repairs. It is also important to consider the tax implications of leasing a car for business purposes, as the tax benefits may vary depending on the type of lease and the specific circumstances of the business.
What type of vehicle is right for your business?
Another factor to consider when seeking financing for a startup car lease is the type of vehicle that is needed. Certain types of vehicles, such as luxury cars may be more difficult to lease for a new business. It is important to consider the specific needs of the business and choose a vehicle that is practical and within the budget.
In conclusion, while it is possible for a new startup business to secure financing for a car lease, there are several factors to consider including the specific needs of your business. Traditional car loans and alternative lending options are available, as well as various offers specifically for small business owners. It is important when leasing to choose a vehicle that is practical and within your business budget.
With careful planning and research, as a new business owner you can successfully lease a car to help grow and expand your business.
Would you like to take the hassle out of finding the right vehicle options for your business?
We can help you find the best options, including our competitive deals on electric cars.
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