Leasing a car
As a business owner, you have the option to lease a car through your business or privately.
Leasing a car through the business can often be cheaper because:
- There are often better deals for business users
- Payments on the lease are an allowable expense for corporation tax
- If the business is VAT registered, it can claim back 50% of the VAT on lease payments and 100% of the VAT on maintenance payments
However, unless the car qualifies solely for business use (which it probably won’t!), you will have to pay company car tax. The amount you have to pay depends on the amount of CO2 your car emits, the value of the car, and your personal tax bracket (more information can be found here). What this means is that the more expensive and gas guzzling your car is, the higher the tax you pay. So, if you are looking to lease a petrol Hummer at 11mpg, then it may in fact be cheaper to lease it personally due to the huge company car tax that would be due.
Happily for the environment, what this means is that if you are looking to lease a new car, you will be significantly better off if you go electric. The company car tax due on electric cars is a tiny 1% during 21/22 and 2% during 22/23. Therefore, if you lease a £60k Tesla, you will only be paying income tax on a £600 benefit whilst reclaiming 50% of VAT and having a tax deductible expense for the lease costs.
Our advice – if you are going to lease a new car through the business, go electric (or at a minimum, a good hybrid). It is good or your pocket and good for the planet.
What about fuelling/charging the car?
The VAT, corporation tax and personal tax implications for fuelling/charging the car is a complex minefield that depends on the type of vehicle, who owns it, who pays for the fuel/charge, where it is fuelled/charged and how the vehicle is used. There are quite a few variables to consider and it depends completely on your individual situation.
If you need advice about the tax treatment of your vehicle, then please get in touch and we will be able to give tailored advice for your situation. Trying to detail all the possibilities would leave everyone more confused than before!
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