Obtaining Credit for a Business: Cars, Leasing & Finance Options
Whether you’re a new start-up or an established company, understanding how to lease or buy a vehicle through your business can help you manage costs, optimise tax benefits, and improve cash flow.
Obtaining Credit for a Business: Cars, Leasing & Finance Options
Many business owners ask: “Should I lease or buy a car through my company?” It’s not always a straightforward decision. Whether you’re looking to obtain credit for a business vehicle, reduce tax liabilities, or improve cash flow, the right option depends on your circumstances.
This page breaks down the main ways of running a car through your business, the tax considerations, and the pros and cons of each approach.
How to Lease a Car Through a Business
Business leasing, also known as Business Contract Hire (BCH), is a straightforward way for companies to access new vehicles without the commitment of ownership. Agreements typically run for two to four years, after which the car is returned, removing the hassle of managing depreciation or resale.
Monthly rentals are the fixed payments you make for the duration of your lease contract. These cover the use of the vehicle, and you can also include maintenance within this cost. Road tax is normally included as standard, so your monthly payment is predictable and easy to manage. You can tailor the contract to suit your needs, adjusting the initial rental, annual mileage, contract length, and whether maintenance is added to the monthly cost.
At the end of the lease, the vehicle is collected and the business has the option to start a new agreement with a different model. While some funders may offer the chance to purchase the car, business leasing is generally designed as a return-and-renew arrangement, keeping vehicles up to date with minimal administration.
How the Lease Order Process Works
Is it Worth Leasing My Car Through a Business?
Leasing through a limited company can offer a number of advantages. The agreement is taken out in the business name rather than your own, which means the liability generally sits with the company. In the event the business faces financial difficulties, you are not usually personally responsible for the lease.
It is important to note, however, that some funders may request a director’s guarantee. This would make you personally liable if the business could no longer meet its obligations, so it’s worth considering this aspect carefully before signing an agreement.
When it comes to lease payments, under an operating lease, they are fully tax-deductible. The company takes care of all the admin and payments, and you simply get a brand-new car to drive.
You can also claim VAT back on the lease payments if the company is VAT registered. How much depends on the vehicle usage:
- If the car is used 100% for business, you can claim back 100% of the VAT.
- If there is any private use (which is usually the case), only 50% of the VAT can be claimed back.
Options for Running a Car Through the Business
Once you decide to run a car through your business, there are several ways to structure it. The best option depends on your specific situation, including tax implications and the overall financial benefits for your business.
A key factor to consider is how tax rules apply to the vehicle. Emissions play an important role here as cars with lower emissions are generally more favourable to run through a business. This is because government incentives make low-emission and electric vehicles more tax-efficient, particularly when it comes to Benefit-in-Kind (BIK) charges and other reliefs.
Lease Car
Business leasing (also known as Business Contract Hire) is one of the most common ways to run a car through a company. When it comes to leasing, you pay a fixed monthly cost over a set period of time at the end of the contract, you hand the vehicle back. You usually lease for two to four years and return it at the end of the agreement. Since you don’t own the vehicle, you don’t need to worry about depreciation on a new car, and you can upgrade to a newer model at the end of the contract.
You can choose the length of the lease contract, mileage limit, and initial rent. At the end of the contract, you return the vehicle and can then lease a new one. Keep in mind that leasing higher-emission vehicles can be much more expensive once the BiK tax is factored in. Electric vehicles and plug-in hybrid vehicles offer a much more favourable BiK tax rate.
Tax Benefits for Limited Companies
Limited companies can offset up to 100% of lease payments and VAT against their corporation tax, provided the vehicle is used solely for business purposes. If maintenance is included in the lease, these costs can usually be offset as well, giving additional tax relief.
Emissions also affect how much can be claimed:
- Vehicles with CO₂ emissions of 110g/km or less allow you to claim back 100% of the costs against taxable profits.
- Vehicles emitting 111g/km or more generally allow you to claim back 85% of the costs.
This makes low-emission and electric vehicles particularly attractive for businesses looking to maximise tax efficiency while keeping running costs predictable.
Impact on Cash Flow
Leasing a car can significantly improve your company’s cash flow compared to buying outright. When you purchase a vehicle, the full cost is immediately deducted from your balance sheet, which can create a large one-time impact. This can sometimes affect your ability to secure additional lines of credit or financing if needed.
With a lease, however, you pay fixed monthly amounts over a set period, which spreads the cost and reduces the immediate impact on your cash reserves. This predictable expense allows your balance sheet to look healthier and gives your business more flexibility to manage other investments or operational costs.
For many business owners, leasing is the preferred option when cash flow is a priority, as it avoids large upfront payments while still providing access to a new, well-maintained vehicle.
Company-Owned Car
Having the company own the car is less common than it used to be, mainly due to stricter rules on CO₂ emissions. If you use the car personally, you must pay BIK tax, which is calculated based on:
- The P11D value of the car (list price including VAT and optional extras)
- The vehicle’s CO₂ emissions
- Your personal income tax bracket
The higher the emissions, the higher the tax cost. Low-emission and electric vehicles, however, are taxed at much lower rates. In some cases, the company may also write off 100% of the car’s value against taxable profits if the emissions are under 50g/km, making electric or hybrid models a financially efficient choice.
Charging Mileage
Another popular option is to use a car you own personally and claim mileage for business use. HMRC allows you to charge your company tax-free mileage rates, currently set at 45p per mile for the first 10,000 miles in a tax year and 25p per mile thereafter.
These payments are designed to cover all running costs, including fuel, insurance, and maintenance. If you are reimbursed less than the HMRC rate, you can claim the difference on your tax return.
Journeys that qualify include travel to client meetings, trips between workplaces, or travel to project sites. Regular commuting, however, does not qualify. To support claims, it’s important to keep accurate records of mileage, dates, and purposes of travel. Many business owners now use mileage-tracking apps to simplify this process.
Run a Car Through an LLP or Partnership
Another option is to run your car through a partnership or Limited Liability Partnership (LLP). This approach can offer significant savings, particularly if you use the vehicle mainly for business purposes.
Unlike company directors with a company-owned car, you are not subject to Benefit-in-Kind (BIK) charges. This is because the car is treated as an asset of the partnership rather than a benefit provided to you personally. In some cases, the car can even be transferred out of the partnership without creating a tax charge.
VAT
If the car is used purely for business, the company may be able to reclaim the VAT paid on the purchase or lease price. For cars that are used for both business and personal purposes, VAT usually can’t be fully reclaimed, but 50% of the VAT on lease payments may be eligible. You must be VAT registered to do this.
Tax
Your company may be able to claim capital allowances to offset some of the car’s cost against taxable profits. For vehicles with lower or zero emissions, enhanced capital allowances can allow you to deduct up to 100% of the car’s value in the year of purchase.
Learn More About BiK
Benefit-in-Kind (BiK) is a tax employees pay when they use a company car for personal journeys. The amount you owe depends on the car’s value, its CO₂ emissions, and your personal income tax bracket. The higher the emissions, the higher the BiK rate – which can make a big difference to your monthly cost.
Vehicle value (P11D) × BiK tax (%) × tax bracket (%) ÷ 12 = Monthly cost of BiK (£)
For example, let’s look at the Audi A3 plug-in hybrid. With emissions of just 9g/km, this model sits in a low 9% BiK band. With a P11D value of £39,125 and a 40% taxpayer, the calculation:
£39,125 × 9% × 40% ÷ 12 = £117 per month in BiK tax.
Now compare that to the BMW 3 Series petrol. This version produces 148g/km of CO₂, placing it in the 35% BiK band. With a P11D value of £40,715 and the same 40% taxpayer, the calculation:
£40,715 × 35% × 40% ÷ 12 = £475 per month in BiK tax.
This highlights the cost difference when it comes to BiK, and how lower-emission vehicles can make an impact on the BiK rates.
Can I lease a car through a new business?
Yes, you can lease a car through your new business. Even if your company has just started trading, you may still be able to apply for a business lease.
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.
What Cars Are Best for Business Leasing?
With current tax rules and Benefit-in-Kind (BiK) considerations, low-emission vehicles are the real stars when it comes to business leasing.
Top EVs and PHEVs
Disclaimer
This information is for guidance only and does not constitute tax advice. Please consult your accountant or tax adviser for advice specific to your business.
Frequently Asked Questions
Our finance partners will carry out a credit check to approve you for your chosen lease. It’s a good idea to know your credit status beforehand, because being declined could have an impact on your credit score.
If you’re unsure, you can check your credit score with a credit reference agency before applying, which can help you understand your likelihood of being approved for a lease.
Yes, it is required. When we submit your application to our finance providers, they will carry out a credit check to see if you qualify for funding. Please note that if a finance company declines your application, it could have a negative impact on your credit score.
If your application for a business van lease is declined by one of our finance partners, it may be because your credit history is seen as too high a risk. To improve your chances in the future, focus on strengthening your credit by making all payments on time and in full.
Yes, you must pass a credit check to be approved for a car lease.
Yes, having a guarantor can improve your chances of being approved for a van lease. A guarantor agrees to take responsibility for the lease if you’re unable to make the payments, which reduces the risk for the finance company.
After filling in and submitting the form credit usually takes around 24 hours to be approved or rejected although it can sometimes be quicker or longer.
- You must be at least 18 years old.
- You need a full, valid UK driving licence.
- You should have three years’ employment history.
- A reasonable credit rating.
If you have poor credit, leasing companies may decline your application or request a guarantor.
Yes, VAT is included in your monthly payments. Your quote will show the exact amount.
After we’ve submitted your details to the finance company for a car lease, they’ll carry out credit and affordability checks. This process usually takes anywhere from 1 working day up to a week.
Yes, you’ll need to pay an initial rental when leasing a car. The minimum is usually the equivalent of 1 month’s rental upfront, but most agreements offer options of 1, 3, 6, 9, or 12 months. You can tailor the contract to suit your budget and preferences.
