If you decide to lease the next vehicle you purchase, you’ll typically be asked to select between either personal or business leasing. While both types of contract car hire have similarities in the way they work, business leasing is usually the cheaper option in comparison to personal leasing. This is due to the different tax that you will pay for the two different types of hire.
Essentially, business leasing, or business contract hire, enables a firm to arrange rental of a completely new car and enjoy monthly payments that are affordable. A contractual agreement, business leases are designed for the purpose of renting company cars long-term.
Prospective drivers looking into business leasing will find that it is often less costly than personally leasing a vehicle, as value-added tax (VAT) is not included in each monthly payment that must be made.
Personal leasing offers will always be advertised with monthly payments including VAT, which is why promoted deals for business leasing will often be considerably more affordable.
The difference between a Personal Contract Hire (PCH) agreement and a Business Contract Hire (BCH) agreement lies in the name listed on the car hire contract, the kind of documents required and the money that can be reclaimed at the end of the agreement.
Cost-wise, BCH deals are offered at a cheaper price per month than PCH offers, as consumers are able to reclaim 50 per cent of VAT on such agreements. Additionally, if they specify that they would like maintenance added to a deal, consumers will find that all VAT can then be reclaimed.
Fuel costs are another area that can be included in expenses. Tax can be returned for money spent on any business-related mileage that a vehicle part of a BCH agreement undertakes.
If a car that has been leased for business is additionally being employed for personal journeys and is not employed on a Flat Rate Scheme, three different ways exist in which VAT can be claimed back for fuel costs.
The first method is to only claim for the VAT on fuel charged on business trips alone. The second is to claim the total amount of VAT and then pay the cost of fuel consumption for private trips separately. The third option is to not claim back VAT at all. This last approach is typically adopted when the miles covered on business are so low that drivers find the scale charge for fuel is higher than the VAT that would be reclaimed.
With a PCH lease, a private individual will be named on the agreement, but with a BCH, it is the company the individual works for that is responsible for signing all paperwork for the car hire.
This means that, unlike personal leasing, which requires photographic ID like a driver’s licence or passport, and proof of address like a bank statement or council tax bill, the documents requested will be more in-depth.
Business leasing will ask for audited accounts and bank statements, usually covering the three most recent calendar months. Proof of identity and address for the company’s main director is also a requirement.
If you’re working for a VAT-registered enterprise, you will be able to lease completely new vehicles for two to four-year terms for monthly payments at a fixed price. The vehicle leased can be used by staff for business-related purposes. It’s also possible for the leased vehicle to be employed for personal travel, on the condition that the mileage used is deducted from the vehicle’s total.
An upfront or initial payment, commonly referred to as a deposit, is necessary before the start of the agreement, which is calculated by using the monthly fee for reference. For instance, a three-month hire contract for a vehicle that costs £200 a month would require the company to make an upfront payment of £600. While it is not refundable, the greater the deposit made on a car, the less costly the set leasing fee over the contract’s course will be.
Businesses will also be given the possibility of choosing a cap for annual mileage. While it depends on the provider or leasing company used, sometimes this limit can be higher for business deals. This is because these vehicles tend to cover considerably more miles. Typically, the maximum limit of miles is around 30,000 a year for such a deal, although some offer will have higher mileage options, with an excess of 40,000 miles per year.
It’s worth remembering that charges for excess mileage are in place, calculated at rate per mile, along with any fees for damage incurred that isn’t termed as reasonable wear and tear. This amount charged will differ from provider to provider, but this information will be included within a contract.
If your firm’s chosen deal does not include an insurance product, this will also need to be in place before the car is delivered, which means the policy must begin on the same day.
A final option for leasing a car through a business is to use it as a pool car. These are company vehicles used by staff but are kept at the enterprise’s address, even outside of a business’s operating hours. Pool cars are exempt from company car tax, but must only be used for business purposes.
Ensuring you claim for every business expense and don’t end up out of pocket isn’t easy. If you’re looking for professional tax return services for a South Yorkshire firm, at Adaptive Accountancy, we can help. Whether you’re a sole trader or growing your family business, our services are designed to take the stress out of yearly returns and make certain you hold onto more of your earnings.
For guidance and advice on company cars, or to explore our dedicated services further, contact us today.