Can I Get A Business Lease If I’m Self-Employed?

If you’re self-employed then you can get a business lease as leasing providers will consider you a sole trader. However, you’ll need to provide documents as part of a mandatory credit check before being approved for the finance.

Find out everything you need to know about self-employed business leasing in this guide.

What documents do I need for a business lease?

UK photo ID - driving licence

The process of applying for a lease agreement as a sole trader is the same as if you were going through a business.

In order for a finance provider to check that you can afford the monthly payments, you’ll be asked to provide the following documents:

  • Proof of address and ID.
  • Last three months of bank statements.
  • Latest trading accounts.

6 advantages of self-employed business leasing

Business owners and other sole traders benefit from self-employed tax exemptions when it comes to leasing a car for business purposes.

Here are 6 advantages of self-employed business leasing which may mean you want to consider it for your company.

1. No company car tax

business car tax electric vehicles

Benefit in kind (BIK) tax is what employees of a business pay in order to use a car which is financed/owned by a company they work for. However, when you’re self-employed there’s no legal difference between you and your business.

Using the latest tax bands, a standard Vauxhall Corsa emitting 125g/km CO2 would cost 20% taxpayers £984.90 per year. For those paying 40% tax on earnings, this is increased to £1,969.80. These savings can make a huge difference to a self-employed worker!

You can find out more in our other guide about how company car tax works.

2. Claim expenses on running costs

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There are two ways you can do this.

  1. Flat rate – calculate your total business miles and multiply them by a rate of 0.45p per mile (after 10,000 miles, the rate is 0.25p per mile).
  2. Actual cost – log expenses for insurance, fuel, road tax and MOT (if applicable), repairs and maintenance. Multiply this total by the percentage of business miles you’ve driven the car for to get your tax-deductible expense.

Beware that if you decide to use the flat rate method, you must stick with it for the vehicle in question. But you can use the actual cost method for a different car.

You can use an expenses checker to find out which one is best for you. 

3. Up to 100% off VAT on monthly payments

It’s much more affordable to get a business lease than it is a personal one because you can reclaim all of the VAT on the monthly rentals. This also applies to any maintenance package you add to the deal too.

Because of the cheaper asking price, it’s more likely that you’ll be able to afford a premium model. For example, the BMW 4 Series is available from £231.15pcm, compared with £277.38pcm on a personal contract. This may not seem like much of a difference, but over the course of a four-year contract, you’d be saving £2,219.04.

4. Professionalism

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Business leasing gives you access to the latest vehicles for a reduced cost, which can be a great way to showcase the professionalism of your brand/company.

If your line of work involves visiting numerous clients for meetings, for example, it’s more likely that you’re going to get a good reputation when you’re turning up in a nice vehicle. What’s more is that your business operations will run much more smoothly if you regularly update your company car to a brand-new model every few years. If your clients see that they’re getting a better service, the chances are that you’re going to see an increase in custom and therefore profits.

5. Road tax often included

Road tax (also known as ‘Vehicle Excise Duty’) will usually be covered in the monthly payments for your business lease car. For cars which emit a lot of CO2, such as sports models, this could be as high as £2,000 in the first year.

Remember: Some leasing deals only include road tax for the first year of the agreement, so be sure to check the T&Cs of a contract before signing it.

6. Finance can be ‘off-balance-sheet’

The nature of a lease agreement means that the finance can often be kept off your business’ balance sheet.

This is great news if you plan to raise some funds through a loan, grant or investment. The reason being is that you’re going to be able to present a more attractive view of your business’ finances if there are less monthly outgoings.

3 considerations of self-employed business leasing

Like with any finance agreement, there are possible pitfalls you need to be aware of if you’re self-employed and considering a business lease.

1. Make sure you can afford the payments

cash for a car

If you don’t earn a fixed salary from your job it can be difficult to budget for your monthly expenses, including the rental payments for your lease car. However, missing any of these installments will lead to expensive charges and continuous missed payments could mean that the vehicle is repossessed by the finance provider.

This isn’t to say that you should avoid leasing all together if your earnings fluctuate. Instead, you should try to work out your average monthly pay based on the last financial year. Once you have that figure and have accounted for your other outgoings, you can then look for lease deals which fit with your remaining budget.

2. Remember to log personal mileage

odometer

While the tax benefits of being self-employed and leasing a car for your business sound great, they only apply to miles/expenses from use of the vehicle for work. This excludes travelling to and from your place of work (if you have one for your own business).

Even the occasional supermarket visit in between picking up clients is classed as a personal journey. So, be sure to keep track of this mileage and any receipts associated with these journeys so that this evidence can easily be provided to HMRC.

3. A maintenance package could save you money

According to the latest figures by Statista, company car drivers rack up the largest number of miles in the UK – an average of 18,000 miles per year.

If you know that you’re going to travel these sorts of distances in your lease car, you may want to consider adding a maintenance package to your agreement. This will mean that you can take the car in for regular services for any wear and tear issues before they potentially cause greater damage. If this were the case, you’d need to pay repair costs to have the vehicle fixed before it’s returned to the provider.

Usually the price difference between a deal with maintenance and one without is £20-£30 each month, depending on the model. However, damage costs for common issues such as a single small dent are at least £195 which could wind up being a worse cost if it’s a one-off unexpected payment.

How do I qualify for a business lease if I’m self-employed?

There are certain criteria you must meet if you’re going to lease a car for your own business.

First, you’ll need to fit in the category of being someone who is self-employed or a sole trader. You’re automatically considered self-employed/a sole trader if one of the following applies to you:

  • You own your own business and work for yourself.
  • If you work for a number of clients.
  • You charge a fixed fee for work you do on behalf of clients.
  • You provide equipment/tools to help finish a job.

Once a leasing company knows that you’re a sole trader, you’ll just need to show the essential documents mentioned earlier.

How do I claim a lease car against tax when self-employed?

There are two methods of claiming back allowable business expenses on your company lease car, and they are:

  • Flat rate system – calculate the costs of your car’s expenses using the annual mileage (45p per mile for the first 10,000 miles, then 25p per mile for additional mileage).
  • Calculate actual costs – instead of using the simple flat rate method, you can claim your lease car expenses against tax by keeping a record of exactly how much you’ve spent on fuel and parking, for example.

You can do a tax return online or in paper form.

Do I have to pay company car tax if I’m self-employed?

As we mentioned earlier, you won’t need to pay the company BIK tax on a car which you’ve leased for self-employed business use.

This only needs to be paid when you’re an employee working for a company which has a business vehicle which you benefit from and use on the job or for personal journeys.

Want to know more about finding the right company car? Head over to our business guides page for everything you need.

Need a brand-new, reliable car for your business? Compare prices on our latest lease deals to find the best offer on a new motor.

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