What is Business Car Leasing?
When a company has transportation needs for employees, it may make sense to enter into a business car lease rather than purchase a vehicle outright. Some companies provide vehicles as incentives which employees can use the leased car for business or personal use. Commercial vehicle leasing may be the most economical option for a business.
Business car leasing, sometimes called business contract hire, is quite similar to personal car leasing. When determining the monthly payment, the depreciation of the vehicles over the term of the lease is assessed. A down payment may be due at the beginning of the lease. Then, the business pays a monthly payment for the life of the lease.
At the end of the lease, the business may opt to enter into a lease with a new vehicle. This helps the business meet their transportation needs and avoid costly repairs since new vehicles are typically covered by manufacturer’s warranties. Having new vehicles also helps the business look more professional and maintain a polished image in the community.
Who is Eligible for Business Vehicle Leasing?
Only a VAT-registered business is eligible for business vehicle leasing. As a business grows, their transportation needs may change. Leasing options can be a great way to replace older vehicles which may be costing the business money in excessive repairs and maintenance.
While an individual cannot claim back some of the VAT of their personal car lease, the person can recover some costs if the car is used for business use. People who drive their personal vehicles for business purposes are encouraged to keep a log of their business mileage in order to be able to claim fuel expenses based on mileage.
Business Car Leasing Is Cheaper Than Personal Car Leasing
A personal car lease includes VAT with each monthly payment. The VAT is a fixed rate of 20%. With business car leasing, the company can claim 50-100% of the VAT back as well as any VAT paid on maintenance agreements. The business can claim 50% if the vehicle is being used for business and personal use. This doubles to 100% of the VAT if the car is used for business purposes only. These VAT rebates can make business car leasing considerably cheaper than personal car leasing.
If a vehicle that is leased by a business is used for personal use of an employee, the company must pay VAT on that mileage. If the company car is kept on the property of the business outside of normal business hours, the company can claim that car as a pool car which is not subject to VAT. The pool cars are typically only used for business during regular business hours.
How to Get a VAT Rebate on a Commercial Car Lease
Business can easily reclaim VAT on a commercial car lease by submitting a VAT return. The business will need to register for an online VAT account if not previously registered. The process of submitting a VAT return can be as easy as sharing your business lease account information to HM Revenue and Customs (HMRC). Typically, VAT refunds are processed within ten days.
If you have any questions about your eligibility to get a business car lease or whether it is the right option for your business, contact any of our leasing specialists who would be more than happy to discuss your transportation needs and budget requirements.
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