Driving can be an essential part of keeping your business going, but buying your own vehicle might not be possible. You might have thought about leasing, after all, a limited company can get a business lease. 

But as a self-employed person are you allowed to get a business lease on a car? Keep reading, as we explore the following:

  • Can self-employed people get a business car lease?
  • How do self-employed car leases work?
  • What are the pros and cons of a business car lease?
  • How can Countingup help manage leasing costs?

Can self-employed people get a business car lease?

First things first. Can a self-employed person lease a car? Yes, they can. Since a self-employed person qualifies as a business owner, they are eligible for a business lease

The only exception to this is taxi drivers. Since taxis are almost always on the road, they experience a lot of depreciation. This makes it unsustainable for leasing companies to offer taxis to businesses. 

Business leases don’t work exactly the same as private ones, though there are still some checks you need to pass first. 

How do self-employed car leases work?

Even though you’re a business owner, you can’t just walk up to a dealership and hop in a car. 

There’s a process and various checks you need to go through first. These checks help the leasing companies determine if you’d be able to pay the long-term lease.

To apply, you’ll need to provide the following: 

  • Latest trading accounts
  • Last three months of bank statements
  • Proof of address
  • Valid ID (e.g. passport)

Once the checks have taken place, you should be eligible to take out a lease. Depending on your finances, the type of vehicle you can lease may vary. 

Lease options

Here are the main lease options available to you as a business owner. They’re relatively similar, but with a few slight differences you should be aware of. 

Business contract hire

A Business Contract Hire (BCH) is essentially the business version of a Personal Contract Hire lease. With a BCH, you pay a fixed monthly fee for the length of your contract. 

You might also have to stay within a mileage limit, meaning you can only drive the vehicle a certain distance. Going above this limit usually results in excess charges

Finance lease

Similar to a BCH, you pay a monthly fee but don’t have to worry about any mileage limits. This can provide you with a bit more flexibility with how you use the vehicle, and might be better for your business.

The offset is you’ll have a balloon payment to deal with at the end of your contract. This balloon payment will make the car yours, meaning you can keep it or sell it on. 

If you’ve looked after the car, then it’s actual worth can be more than the final payment. If that’s the case, you might want to sell it on and pocket the difference. 

Operating lease

With an operating lease, you do not own (or have the option to own) the vehicle at the end of your lease. 

On the other hand, this does result in lower monthly payments than the other options

What are the pros and cons of a business car lease?

Leasing a car can be a great decision, but it’s not always the best one. Check out the pros and cons to see if it’s the right choice for your business. 

Pros

Leasing a vehicle has some incredible benefits, so let’s take a look at a few of them. 

Business expense

One of the best reasons to lease a business car instead of a personal one, is because you can write off the cost as a business expense

Potential VAT reduction

Is your business VAT registered? If so, you might be able to get the VAT removed from the cost, making it much cheaper to use. 

Improved cash flow

To buy a car, you need to have a large amount of cash ready to go. Building it up can be difficult and take a while, especially when you have other costs to manage. 

With a lease, costs become smaller, monthly payments which are much easier to manage. 

Potentially no road tax

It’s common for road tax to be included in lease deals as standard, meaning you won’t have to pay road tax separately. 

Drive brand new vehicles

Lease cars are typically driven from new, which means you can get your hands on the latest vehicles. Since leases only last a few years, you’ll always be driving something new. 

Complete manufacturer’s warranty

Since you’re driving the car from new, you typically get a warranty with your lease. You can expect this to last as long as your lease, but always double check. 

No ‘company car tax’ 

If you were an employee with a company car, you’d still have to pay some car tax. As a business owner, you don’t have to worry about this. 

Cons

Of course, there are some downsides too. Have a look below for the biggest ones. 

An ongoing cost

Since the car never becomes ‘yours’, you’ll have to pay every month of the lease without fail. That means if you suddenly run into a period of low income, there’s nothing you can do about it. 

An owned car can be sold, but there aren’t many options for getting rid of a leased car before the contract expires. 

Expect to pay extra fees

When using a vehicle, it’s impossible to keep it in perfect condition. Events may take place that require you to go over your agreed mileage. 

When your lease ends and you hand it back, it’s quite common to have additional fees added to cover any damage. This can sometimes come as a surprise, so be aware of it and set some money aside just in case. 

How can Countingup help manage leasing costs?

Managing additional payments can be tricky if your cash flow is a little tight. Instead of worrying about it, try using accounting software to help find the extra cash. 

The Countingup app is a great two-in-one business current account and accounting software. By using it you’ll have crystal clear control over your finances. 

For instance, it boasts automatic expense categorisation. Basically, the app sorts all your business expenses into HMRC-compliant categories. That way, you know exactly what you can and can’t claim a tax reduction on. 

If you fancy trying the app out for yourself, download it today!