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Should I lease a car through my limited company or personally?

Leasing a car can be a very economical way of getting on the road in a car that isn’t likely to fall apart!

Many small business owners are often unsure whether it’ll be more tax efficient to lease the car personally, or through their limited company. Choosing the wrong option could be a costly mistake, and we know that no one wants to end up paying more tax than they need.

Unfortunately, there’s no ‘right’ answer in this situation. The best option depends entirely on your own circumstances, and it’s worth noting that both options have benefits and limitations. Before you carry on scrolling, we’d highly recommend seeing what our local Accountants can do for you.

Now, what exactly is the difference between the two? Let’s take a look.

Personal and professional

There are two options when it comes to leasing your car. They are:

  •     Leasing through your limited company: this means leasing the car through your business.
  •     Leasing personally: the car has nothing to do with your place of work or business. You’re able to use the car as you please in your work and personal life.

It sounds pretty straightforward when you break it down like this, but there’s a bit more to it! Let’s take a look at the differences.

Leasing through your limited company

When it comes to leasing a car through your company, there are a few benefits that you should be aware of:

  •     There tend to be better lease deals for business users
  •     You still have to pay company car tax, but it’s often cheaper than personal car tax
  •     If you use vans or pickups, you pay a fixed car-tax rate
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Leasing a car personally

So what exactly are the benefits of leasing a car yourself in comparison to doing it through your business? We’ve listed some of the pros as follows:

  •     You get a brand-new car every couple of years – definitely a positive!
  •     Vehicle Excise Duty or VED – commonly known as road tax – is usually included
  •     You don’t have to pay company car tax

If you decide to steer clear of leasing through your business, then you’ll need to pay the VAT in full. That means adding 20% onto the monthly price you have been quoted – yikes. You won’t be able to reduce your Corporation Tax, but you will save on the personal tax as you won’t have a benefit.

Leasing your car personally also requires you to keep a record of all business mileage. Your business can then repay you 45p/mile for the first 10,000 miles, and 25p/mile thereafter, without incurring any additional taxes.

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What is company car tax?

If you’re leasing through your company and using the car for personal journeys – including commuting to and from work – you have to pay company car tax. It’s as simple as that! The amount you have to pay is based on the following:

  •     The amount of CO2 your car emits
  •     The P11D value of the car (the P11D value of a car is the list price of the car, plus the cost of any options you’ve chosen, and the delivery charges)
  •     Your personal tax bracket

Basically, the higher the CO2 emissions, the higher the company car tax. So if your car has lower CO2 emissions, you’ll reduce the amount of tax you owe. In addition to this, you can also reduce the amount of tax by only using the car part-time and by paying something towards the costs of the car. More information about this can be found on the HMRC website.

Although there’s no way to avoid paying company car tax, the lease payments you make to your car hire company are tax deductible for Corporation Tax purposes, so you may make some savings there – yay! But we should let you know that the tax office has gotten wise to this, and as a result in a lot of cases you only save a few pounds – or even end up worse off. Have a look at our blog about submitting your Corporation Tax return for more information.

What if I want to lease a company van or pickup?

Company tax for a van or pickup is worked out a little differently. Your company car tax will be calculated by a fixed rate, rather than its CO2 emission or P11D value. The current fixed rate is £3,350, and you’ll pay 20-40% of this rate depending on your personal tax bracket. Head to the HMRC website for more information on this.

If your business would benefit from a van or pickup, then this could be the ideal option. You’ll end up paying considerably less than if you chose a car!

Can I claim back the VAT?

The short answer is – yes! If your business is VAT registered, you can claim back VAT (as you can with your home office if you work from home). You’ll be able to claim back half the VAT you pay. For example, if your car costs £200 plus VAT per month, then you’ll be saving £40 per month by paying it through your limited company rather than personally. This will need to be taken in to account when weighing up the savings you could be making.

So, despite having to pay the company car tax, you may be able to make significant savings by putting it through your business. If your business isn’t VAT registered, take a look at what you need to know about VAT here.


Which is more tax-efficient?

If you want to drive an economical car, like a swanky new plugin hybrid, then you’ll pay less benefit from leasing through your business. As we’ve already mentioned, keeping your CO2 emissions low will reduce the company car tax, so it’s a win-win! If, however, you’re looking for a car that emits a lot of CO2 and has a high P11D value, then leasing privately is likely to be more tax-efficient.

We’ve covered quite a lot in this piece, so don’t worry if you feel a bit overwhelmed! We’re here to help you with any questions you have. Contact us today for more information – we’d be happy to help.

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Personal vs business car lease - your questions answered

We hope you found this article useful, but shouldn’t your Accountant be answering this for you? 😉

If you have an Accountant then you should be able to ask them this question without them charging you a fortune.

And if you don’t have an Accountant – this sort of question is exactly why you need one!


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