Billion-dollar companies have the purchasing power to buy whatever is needed to make business efficient, including a fleet of cars. However, small to medium-sized enterprises need to focus and consider their cash flow before committing to something as expensive as an automobile. Since cash flow is necessary for survival, discretionary expenses should be kept at a minimum.
One of the most popular ways to get a vehicle without hurting your business is by leasing it through your company name. Aside from being the least expensive option, leasing provides several tax benefits. It also has a variety of car and travel-related tax-deductible expenses, which can only be claimed if you lease it through your firm.
How Do I Lease An Automobile Through My Business?
Leasing a vehicle or a bunch of cars are not exclusive to corporations or limited companies. A sole proprietorship or a partnership entity is qualified for a car leasing agreement. Business car leases tend to be cheaper and tax-efficient. The tax you need to pay depends on the following:
- Amount of CO2 a car emits. Vehicles with a carbon emission of more than 110g/km are not fully tax-deductible. They are subjected to a 15% tax disallowance on the rental amount that can be claimed from your company’s profit. If it emits anything less than the CO2 threshold, then you can claim back almost 100% of the tax-paid.
- P11D value and cost. The P11D is the current list price of the automobile you leased. It includes VAT charges, delivery fees, and accessories. The P11D amount is multiplied to the CO2 emissions of the auto. The result would be the basis of your tax deductions if there are any.
- Personal tax bracket
What Are The Advantages Of Leasing An Auto?
- Reclaiming VAT
For VAT-registered businesses, they can claim 50% of the VAT back from the initial and monthly payments to the rental. HMRC allows claiming half of the VAT on the assumption that you are using it for both business and personal use. Also, you can claim back charged VAT for vehicle maintenance and excess mileage.
However, if the automobile is registered at the HMRC as a pool car—an auto that is driven by several employees or employer for business purposes and is left on the site premises when not used. In this case, your company may claim 100% VAT repayment.
- Tax-deductible expenses
Vehicles rented through a company are overflowing with tax-deductible expenses. This includes payment, interest, maintenance, upkeep, and tax. Not to mention the oil changes, inspections, and new parts bought for it during your leasing agreement. You need to file this to the HMRC in order to claim a portion of its expenses back.
Tax deductions do not apply to rented company cars used for hires such as taxis, Ubers, and limo service.
- Financing method
Buying a vehicle means getting a loan that you will have to pay back, with interest, even if the vehicle’s value goes below the amount of the loan you are due. With leasing, the residual value of the automobile can lower the lease cost you owe at the end of the leasing agreement. This means that at the end of your contract, you can walk away without paying for additional fees, hidden costs, and penalties.
Renting also has a lower monthly cost (under the Business Contract Hire), which is perfect for small business owners. This way, they can use a convenient mode of transportation without causing cash-flow troubles. Company car leases provide a great way to drive the latest auto technology every quarter, without the hassle of procuring large amounts of money to pay for it.