Leasing a car

Overview 🚘

As a business owner, you can lease a car through your company or privately. The right option depends on how the car will be used, its CO₂ emissions, and your personal tax position.

Leasing through the company can be attractive because of potential tax savings and VAT recovery, but it’s important to weigh these benefits against the company car tax that may apply if the vehicle is available for private use.

✅ Why Lease Through the Business?

Leasing a vehicle through your company can often be more cost-effective because:

Business users typically access better lease rates.
Lease payments are an allowable expense for Corporation Tax.
If the company is VAT-registered, it can reclaim:
- 50% of VAT on lease payments.
- 100% of VAT on maintenance costs.

These savings can make a noticeable difference to the overall cost of the vehicle.

💡 Company Car Tax Considerations

Unless a car is used solely for business purposes (which is rare), it will attract company car tax.

The tax is based on:

The vehicle’s CO₂ emissions.
The list price (including options).
Your personal income tax bracket.

In simple terms, the higher the car’s emissions and value, the higher the tax.

For example, leasing a petrol SUV that emits over 200g/km CO₂ could attract a very high benefit-in-kind (BiK) charge, making it more expensive overall than a personal lease.

🔍 The system is designed to encourage lower-emission vehicles - which is good for both your wallet and the planet.

⚡ Electric and Hybrid Vehicles

The company car tax rate for electric vehicles (EVs) remains extremely low.

The BiK rate for fully electric company cars is 2% until at least April 2025, rising only slightly in later years.
This means if your company leases a £60,000 Tesla, you’ll pay income tax on just £1,200 of benefit in 2025–26 (2% × £60,000).

At the same time, the company can:

Reclaim 50% of the VAT on the lease.
Deduct the lease costs from profits for Corporation Tax purposes.

💡 Our advice: If you’re leasing through your business, go electric - or at least consider a plug-in hybrid. You'll save tax, support sustainability, and simplify reporting.

🔗 Barnes & Scott: Should I buy an electric car?

🔍 Fuelling and Charging Costs

The VAT, Corporation Tax, and personal tax implications of fuelling or charging a company car can be complex.

They depend on:

The type of vehicle (petrol, hybrid, or electric).
Who owns the car (company or individual).
Who pays for the fuel or charging.
Where it is fuelled or charged (home, workplace, or public).
The mix of business and private use.

Because of these variables, it’s best to seek tailored advice before reimbursing or claiming any fuelling costs.

If you’d like help assessing your situation, contact us for a personalised review.

💡 Key Points

Leasing through the business can be tax-efficient, especially for electric or hybrid cars.
Company car tax depends on emissions, car value, and personal tax rate.
EVs benefit from a 2% BiK rate (until at least 2025–26).
Always consider the full picture, including VAT recovery, corporation tax, and personal use.