Who is eligible for a business lease?
When we talk about business car leasing, we mean leasing a vehicle for business use. That can include driving between multiple offices or other locations as part of your job, driving to meetings, or traveling to attend conferences and conventions.
But whatever the reason why you need a car for your job, you might still wonder whether or not you are eligible for a business lease deal, as opposed to a personal car leasing plan. To put it another way, what do we mean by ‘business’?
In this guide, we’ll aim to clear up any confusion over business car leasing eligibility to give you some confidence about whether (as an individual or as an employee of a company) you are eligible for a business car lease.
For How Long Should a Business be Established to Lease a Car?
As a general rule, profitable businesses need to have been established for two years with full sets of accounts and trading history to be eligible for business leasing. However, this does depend on the nature of the business and its financial situation, as well as the value of the vehicles to be leased.
However, some finance providers may consider new start businesses if they can provide draft or management accounts, three months’ worth of business bank statements, confirmation of business activities, directors guarantees and directors trading history.
If the business, for example, previously operated as a sole trader and transferred to a limited company, our finance providers may also look at this in conjunction with the sole trader’s tax return information.
Our team are happy to chat through your options with you to understand the right funding route for your business leasing requirements.
Business Car Leases For Employees
If you’re an employee of a large company, you might want to speak to your manager about the availability of a leased company car. You probably already know if this is a benefit that comes with your job, but if you’re moving into a new role and need to travel to do your work, it can be a good time to ask. Alternatively, your company may offer a salary sacrifice scheme for those employees who are not eligible for a company car. This involves “sacrificing” part of your salary for a lease car, which may save both you and your company money, and is a fantastic perk to recruit and retain staff as well as supporting environmental credentials as hybrid and electric cars work best on this scheme.
If your employer won’t lease a car for you to use for work, you can look at alternative options, such as a personal leasing agreement. You won’t be able to take out a business lease in your employer’s company’s name without permission, but personal leasing is a good alternative option. In many cases it can also work out to be more efficient, as personal leases do not have benefit-in-kind tax associated with them, whereas company cars do.
Business Car Leases For Sole Traders
Not all ‘businesses’ are companies. A growing number of sole traders need to drive to do their work, and if you’re one of them, you might find you are eligible for a business car lease even as an individual.
There are some exceptions. If you are a taxi driver (or an equivalent driver for an app like Uber or Lyft), you may not qualify for a business lease because the constant driving involved in your job will put the vehicle under significant stress over time.
If you’re not a sole trader, but in a partnership or an LLP (limited liability partnership), there’s a good chance you will also be eligible for a business lease.
Business Car Leases For New Companies
A business car lease is akin to a loan, and it’s normal for leasing providers to run a credit check on your company before agreeing to supply you with a vehicle. Brand new companies may not have had much chance to develop a history of financial trading. Many leasing finance providers require a minimum of two or three years trading.
However, this is not necessarily a dealbreaker though, as, dependent on the finance, provider, additional information may be requested by the underwriting team. This could be, for example, a selection of the following:
- Additional documentation (e.g. 3-months business bank statements, draft or published management accounts, profit and loss accounts, details of trading history)
- Director’s guarantee (i.e. using personal credit scores as proof of reliability)
- Larger initial payment
If you’re setting up a new company and want to know whether you’re eligible for a business lease, just ask. New start-ups need company cars too, and many leasing providers will work with you if you can show you’re a risk worth taking.
Leasing Cars For A Business
Whether you fall into the categories above or are the director of a long-term, well-established company looking into leasing for the first time, the process is largely the same.
You may need to provide any or all of the following:
- Proof of ID for the business owner/directors.
- Full company details, including registration number and bank details.
- A successful car lease background credit check.
If you have all the necessary information available and your business has a good credit history, then there’s usually a solution to providing your leasing requirements.
Planning For Maintenance Costs
One option for sole traders, partnerships and companies that don’t want the risk of unexpected repair costs is to consider opting for a service and maintenance plan. This will cost a little more as part of your monthly lease payment, but you will not have to pay out-of-pocket for any covered maintenance expenses, such as regular servicing and tyres.
Instead, in case of an incident covered by your lease, the leasing provider will arrange for any maintenance work to be carried out at no additional cost.
For people whose business relies on being able to get from one location to another without public transport, a lease vehicle with a service and maintenance plan is an excellent way to protect that ability, alongside your company car insurance policy and the protection you get from that.
Is Business Leasing Tax Deductible?
It’s worth speaking with your accountant to understand if your lease vehicle can be deducted against taxable income. This will depend on the type of vehicle, as well as other factors. VAT-registered businesses can recover 50% of the VAT on monthly business car leasing payments and 100% of the VAT on maintenance and service costs, however, you should always take up-to-date tax advice from a qualified accountant, as the rules do vary.
These rules are subject to change, especially as the UK moves towards a net-zero approach to vehicle ownership. Check with a qualified accountant if you’re unsure what you can claim.
For sole traders, if you use the vehicle for business purposes only part of the time, you should be able to claim an equivalent portion of the cost as a tax deduction. Again, take advice from your accountant in order to calculate this.
Final Thoughts
Business car leasing is an excellent way to access the most desirable vehicles, including some of the newest makes and models of electric cars on the market, whose low emissions are good news for your tax deductibles.
Even as an individual sole trader, if you are in business in your own right, you should find you are eligible for a business car lease (subject to credit checks etc., in the usual way).
If you’re not sure, ask. Leasing providers welcome enquiries, and if there’s any apparent reason why you might not be eligible to lease a car for business use, they’ll let you know. For more information, check out our business leasing guide.
Beyond that, it’s just a case of deciding what car you want to drive next.