Leasing a car is one of the most common financial decisions you’ll make throughout your life. Whether it’s a personal car lease or a business car lease, there are some considerations to take into account. Here’s everything you need to know about both types of car leases.
Personal Car Leases
A personal car lease is usually the best option for someone who wants a flexible payment plan and doesn’t mind paying a little extra upfront. This type of lease allows you to pay monthly installments over a set period of time – typically 12 months. You’re able to select the exact date you’d like to start making payments and decide how much you’d like to pay per month. If you don’t end up keeping the car for the full term, you simply return it and you won’t owe anything else.
You get the use of the car without having to worry about depreciation.
If you break down or damage the car during the lease period, you could be liable for the entire cost.
Leasing through a Limited Company
A limited company is a legal entity separate from its shareholders. This means it does not pay corporation tax. Instead, it pays income tax based on profits. A limited company is often used by businesses to protect personal assets from creditors.
The main difference between a sole trader and a limited company is that a limited company must file accounts each year. Sole traders do not have to do this.
If you are considering leasing a car through a limited company, you should know that there are some advantages and disadvantages to doing this.
• You don’t have to declare your rental income on your personal tax return.
• You can claim depreciation deductions against your rental income.
• You can deduct expenses such as insurance premiums and road tax.
Can I claim the VAT on my commercial lease?
Businesses who lease vehicles for their personal use cannot reclaim VAT. However, there is a limit on how many times a vehicle can be leased per tax period. If you want to reclaim VAT, it must be done within 30 days of returning the vehicle. You can do this by filling out Form D919.
There is no limit on how much VAT a business can reclaim. However, you must keep records of the amount you reclaim. These records must be kept for three years.
If you are leasing a car for work purposes, you can reclaim up to £1,500 worth of VAT each month. You can reclaim this amount every month without having to fill out a form.
You can reclaim the following amounts:
• Vehicle hire charge – £60 per week
• Fuel costs – £10 per week
• Insurance – £5 per week
Leasing your Car Personally
Personal contract hire is an alternative method of purchasing a car. Instead of paying upfront for a brand new car, you lease one privately. This allows you to avoid paying VAT or road tax, and you are able to choose exactly what type of car you want. If you decide to buy it later, you simply return it to the same dealer and purchase it there.
When you lease a car personally, you do not pay any money up front. Instead, you make monthly payments directly to the finance provider. These payments cover the cost of the car over the term of the agreement. At the end of the term, you either return the car to the dealership or continue leasing it out.
The main difference between personal contract hire and leasing a car via a financial institution is that the latter requires you to sign a long-term contract. In addition, the finance provider deducts a fee each month from your payment. However, you can reclaim most of those fees through HMRC.
If you use a credit card to finance your car, you can claim back your business mileage costs. But if you use cash, you cannot.
Pros and Cons
Leasing vs. Buying – Which Is Better For You?
Buying versus leasing is one of the most common questions we receive here at Equipmentlease.com. We’ve compiled some pros and cons to help you decide whether buying or leasing makes sense for your needs.
Advantages of Leasing
• Flexibility – If you don’t know exactly what type of equipment you’ll need, leasing allows you to test out different models without committing to a long-term contract. Many companies offer flexible terms, allowing you to pay monthly installments based on how much you use the equipment.
• Control – With a lease agreement, you maintain full control of the equipment throughout the term of the agreement. This means you won’t be stuck paying for expensive repairs if you make changes to the equipment. Plus, you can easily upgrade or downgrade the equipment whenever you see fit.
Disadvantages of Leasing
The biggest disadvantage to leasing is the cost. In addition to the upfront fee required to sign a lease, there are additional fees associated with each month’s payment. These include early termination penalties and finance charges.
Advantage of Leasing via a Limited Liability Company
Leasing a vehicle can be a good option for many people. However, it can also be quite complicated and expensive. There are several advantages to leasing a car through a limited company. Here are some examples of how you might benefit from doing so.
1. VAT is recoverable on leases
If you rent a car through a limited liability company (LLC), you can reclaim VAT on the rental income. This applies even if you do not pay VAT yourself. If you use a personal account to pay for the rental, you cannot reclaim VAT.
2. Write off lease cost as business expense
You can write off the entire amount you spend on the lease as a business expense. In addition, you can deduct interest payments and depreciation costs.
3. Credit notes
You can issue a credit note to yourself to cover the VAT you owe. When you return the car, you can apply the money received towards the outstanding balance.
Negative aspects of leasing through a limited liability company
Limited companies are great for small businesses because they offer a number of advantages over sole traders. However, there are disadvantages too. These include the fact that a limited company requires a minimum amount of money just to set up and maintain the company. This is known as the initial funding requirement. If your company runs out…
What Is A Limited Liability Partnership | How To Start A LLC Business Incorporate Your Business
Advantages of Personal Leasing
If you are thinking about buying a car, leasing might make sense. But what does it mean? What are some advantages of personal leasing? Here are five reasons why you should consider personal leasing:
1. Save Money
Personal leases are cheaper than purchasing a car outright. You don’t pay interest payments, and you won’t incur additional fees like taxes and registration. Plus, you don’t have to worry about making monthly payments. Instead, you just pay one big lump sum up front.
With a personal lease, you can change your mind whenever you want. If you decide later that you no longer want the car, you simply return it—no hassle. And because there are no penalties for early termination, you can even sell the car at any time without paying extra.
3. Avoid Credit Checks
When you buy a car, lenders run credit checks and financial reports on you. This process takes anywhere from 30 days to three months. With a personal lease, however, you avoid having to provide proof of income or assets.
Disadvantages of Personal Leasing
If you want to start a personal leasing business, there are some things you’ll need to consider. Here are five disadvantages of personal leasing.
You’ll have to pay VAT upfront. If you don’t, you’ll end up paying it later.
2. Running Costs
Leasing a car usually involves monthly payments. These include fuel, insurance and even parking charges.
Depreciation is the amount you lose over the life of a vehicle. For example, if you buy a £10,000 car and sell it for £12,000, you’ve lost £2,000.
4. Repairs & Maintenance
Repairs and maintenance are often included in the monthly payment. However, if something goes wrong, you’ll have to foot the bill yourself.
HMRC might challenge your decision to lease. They might say that what you’re doing isn’t really a business.
Frequently Asked Questions
What if I want to lease a van or truck for my business?
Company vans and pickups are often used by businesses to transport goods around the country. They’re great because they’re cheap to buy and run, and you don’t need to worry about insurance. However, there are some things to consider when choosing one.
The main thing to look into when buying a vehicle for work purposes is whether it meets emissions standards. This is important because many companies use vans and pickups as part of their fleet. If your business uses a lot of vehicles, then it makes sense to choose something that fits within the regulations.
Another thing to think about is how much you can afford to spend. There are plenty of options available, and you might find yourself spending thousands just to get what you need. A good way to keep costs down is to compare prices online. You can do this by checking out sites like Car Finance 247.
Which has more of a Taxable Benefit?
If you’re thinking about buying a new car for work purposes, here are some things to consider.
Business car leases are usually less expensive than personal leases because there are fewer options to choose from, and you don’t have to worry about depreciation. This makes them ideal for companies looking to save money on their fleet costs. However, you could end up paying more in company car tax if you opt for a business lease. On the flip side, if you want to keep your business afloat, a business car lease could help you avoid having to make large capital investments.
A personal lease gives you more flexibility and choice, but it’s likely to cost you more over the long term. If you buy a leased car, you won’t be able to claim the full amount against your income, whereas you can claim a larger proportion of the value of a business lease. You might also be able to deduct the business lease interest payments from your taxable profits.