Personal leasing vs. business leasing

When viewing the latest electric car models available to lease on the Synergy website, you’ll notice you’re given a choice between a personal lease and a business lease. So, what’s the difference?

The most obvious difference is in the way the pricing is displayed and you’ll notice that business leases exclude vat and personal leases include vat. We’ll explain this in more detail as well as other key differences between personal and business leasing.

What Is Business Car Leasing?

When we talk about business leasing, we’re referring to business leasing a vehicle, usually for an individual driver. However, the vehicle is leased under the business, not the individual, and the business is responsible for the vehicle during the entire term of the lease. Leases typically last between one and four years and allow the vehicle to be used for personal reasons, as well as to conduct business.

Qualifying VAT-registered businesses can claim back half of the VAT, with HMRC assuming some private use of the vehicle which explains why only 50% of the VAT can be claimed back. However, 100% of the VAT can be claimed back on service and maintenance packages, as private use in this instance is not taken into account.

Who Is Eligible For A Business Lease?

Some restrictions exist on the types of ‘entities’ that can qualify for a business lease. The list includes:

• Sole traders
• Partnerships
• LLPs (Limited Liability Partnerships)
• Limited companies (Ltd/Plc)
• VAT-registered businesses

If you’re not sure whether you qualify, contact your car leasing provider, who will easily be able to tell you whether or not they can offer you a business lease. There are other trading criteria and business checks which may also need to be taken into account in order to meet finance criteria for leasing. Depending on the finance provider, this may include, for example, number of years trading, profitability of the company and balance sheet, the last two sets of accounts posted to Companies House, and the credit status of company directors.

How Is The Cost Calculated?

On both business and personal leases, you’ll see an initial rental, a contract term, and a monthly cost to lease your chosen vehicle.

The initial rental is part of the overall cost of the lease, and is usually the equivalent of either 1, 3, 6, 9 or 12 months monthly rentals. Increasing your initial rental payment can decrease the monthly rental cost, and vice versa — the contract terms can be varied to suit your requirements. The initial rental is usually paid just before or after delivery of the vehicle, and then the monthly payments are set for the term of the lease.

What About Annual Mileage?

The annual mileage allowance for each year of your lease is the maximum distance included in the leasing agreement. Generally speaking, the higher the annual mileage the higher the cost of the lease. If you exceed your mileage allowance, at the end of your lease you will be charged an excess mileage charge for each mile the car has exceeded the allowance. The cost per mile is provided at quotation stage, and in most cases, it’s best to be as accurate as you can with any mileage estimates. You will also not receive anything back if you are under your mileage allowance.

If your circumstances change, for example, a business company car driver changes territory and increases the annual mileage, or, for a personal lease, an individual gets a new job and has further to commute to work, the leasing agreement may be able to be re-contracted – you should speak to your leasing broker in the first instance. If the contract cannot be changed, your broker will be able to estimate your end of agreement excess mileage charge so that it does not come as an unwelcome surprise at the end of the lease. Likewise, if you find your company car driver is driving much fewer miles than anticipated, the annual mileage allowance may also be reduced. However, there may be limits on the number of times in a contract your finance provider will allow you to do this.

Are There Any Other Differences?

You may need to provide different documentation for a personal lease vs. a business lease.

Personal Lease

You’ll need to prove who you are, usually using a photographic ID and proof of address. You will also need to pass a credit check and affordability assessment to qualify for a personal lease. The vehicle must be for your use primarily and you must have a valid driving license. In most cases, you cannot take out a leasing agreement for another person, although there are exceptions to this but it must be discussed in advance with the finance provider.

Business Lease

You’ll need to provide documentation and information about the company you are leasing on behalf of. This may include providing details of the business owner, company directors, registration number, registered office address and company finances.

It’s important to remember that company car drivers are eligible to pay company car tax, or, as it’s correctly known, benefit-in-kind tax, as they are most likely to also use this car in a personal capacity. This varies depending on the P11D value of the vehicle, its emissions and the individual’s tax code. Electric and hybrid vehicles have lower benefit-in-kind payable as they have lower emissions, so it is always worth checking this information before proceeding with any kind of leasing agreement and ensuring that the company car driver understands their tax liabilities.

What About Vehicle Maintenance?

Any lease vehicle must be serviced and maintained to the manufacturer’s guidelines. This means that all scheduled servicing must be done on time and the tyres maintained to legal levels. If you have a leasing agreement and have included a service and maintenance package, you can book your vehicle in for routine servicing and tyres by booking online through the leasing company’s portal or calling their driver number.

If you have opted not to include maintenance, the vehicle must be serviced at an approved VAT-registered garage with genuine manufacturer parts or dealership servicing centre, depending on the make of the vehicle; it is best to check with your finance provider before undertaking any work. If the vehicle is involved in an accident or has body damage, it is best to go through your insurer to repair the vehicle.

For total peace of mind, choose a lease (whether personal or business) that includes a service and maintenance agreement. This should mean that your car can be serviced and maintained at an approved garage near to your home or work, with no additional cost to you or your company.

Which Lease Type Is Better?

For companies, business car leasing is an excellent way to provide company cars without taking on the financial risk of a company-owned asset that depreciates in value very quickly. However, there are qualifying criteria to take into account. For owner-managed SMEs or smaller businesses, your Account Manager will be able to advise the most cost-effective route to lease a vehicle, and whether its personal or business, may depend on the type of vehicle and the trading status of the company. For example, fully electric vehicles currently offer low benefit-in-kind tax rates for company car drivers, but if the Owner of an SME did not want an electric vehicle, it may be more cost effective to take a personal lease and to pay themselves a company car allowance to avoid benefit-in-kind tax – all depending on the nature of the vehicle required and the nature of the business. It is usually recommended to check over any proposed leasing quotation with your company accountant before committing to the lease, to ensure it is right for you and right for your business.

Remember, whether you are enquiring about a personal or business car lease, a reputable leasing provider will handle your enquiry confidently. They will be able to advise you on what type of lease and outline the lease terms you are eligible for.

Make An Enquiry

You’ll find lots of information on your leasing broker’s website. This can be useful when deciding which models of EV are suitable for business and personal use, what types of charging points you’ll need, the fuel economy achievable on the current market, and so on. Contact your leasing broker to enquire about a business or personal car lease. You can make a general enquiry or choose from the latest electric car models on the market and ask for a personalised quote on a stock model to get on the road even faster.