Why Is Business Leasing Cheaper Than Personal?
Both are similar in terms of their processes, but business leasing is cheaper than personal because of the difference in tax you pay for both types of deals.
Differences between business and personal leasing
What differs between a BCH (Business Contract Hire) and PCH (Personal Contract Hire) lease is whose name is on the contract, the documents you require and what money can be claimed back at the end.
Business lease deals are often cheaper per month than personal offers because you’re able to claim back 50% of VAT on them. Also, if you specify that you want maintenance adding to the deal, all the VAT can be claimed back.
Fuel costs also form part of the expenses which you can get a full tax return for, but only for mileage which is business related.
If your leased work car is also being used for personal journeys and isn’t on a Flat Rate Scheme there are three ways in which you can arrange claiming back any VAT on fuel:
- Reclaim all VAT and pay the total cost of fuel used for private trips.
- Only reclaim the VAT on fuel for business trips.
- Don’t claim back any VAT – this is usually an option for when business miles are so low that the fuel scale charge is higher than what you will reclaim.
All PCH deals will be advertised with VAT included in the monthly payments, which is why business prices will mostly be considerably cheaper.
Whose name is the lease under?
With business leasing, it’s the company you’re working for that signs all the paperwork for the car. On the other hand, a PCH lease it’s the private individual – in this case, you.
What this means is that, depending on which agreement one you choose, you’ll need different documents before signing the contract.
For personal leasing, you need:
- Photo ID – e.g. a passport or driving licence.
- Proof of address – e.g. utility bills or bank statements.
For business leasing, you need:
- Bank statements and audited accounts – typically three months’ worth.
- Proof of address and ID of main company director.
What is business leasing?
Otherwise known as Business Contract Hire (or BCH for short), a business lease is a contractual agreement used for the long-term rental of company cars.
If you work for a VAT registered organisation, you can lease brand new vehicles from 2-4 years for fixed monthly payments. This car can then be used by employees for business purposes. It can also be used for personal trips, although the mileage must be deducted from the car’s total and then this will be taxed at the same rate as paid on a personal deal.
An upfront payment (also known as an ‘initial payment’, ‘initial rental’ or ‘deposit’) is required before the agreement begins, which will be calculated using the monthly fee as a reference. For example, a three-month initial rental for a car worth £200 per month would mean the business pays £600 upfront. Though non-refundable, the more you put down for the vehicle will in turn make the set fee over the course of your contract cheaper. Typically you can choose between one, three, six or nine months.
Just like with a personal deal, you will be given the option to choose an annual mileage cap. Depending on the leasing company or provider you’re using, sometimes the limit can be more for business offers, as these cars tend to do a lot more miles. A maximum of 30,000 per year is typically the limit for each deal, although certain deals will have high mileage options that are 40,000+ miles per year.
Remember: Excess mileage charges are in place at a rate per mile, as well as fees for any damage which isn’t deemed as ‘fair wear and tear’. The amount will differ depending on your chosen provider, though this information should be included in your contract.
If your company’s chosen deal doesn’t include insurance, this will need to be arranged before the vehicle’s delivered and the policy will need to begin on this day too.
What is personal leasing?
A personal lease is more or less the same as business leasing, but the vehicle is used mostly for private journeys.
Just like with a BCH deal, you’ll pay an initial rental, followed by fixed monthly payments for a few years. Once you’ve found a price which suits your budget, you then decide on a mileage cap for each year, with the same charges in place if you go over this or damage the car.
The finance provider is the owner and registered keeper of your leased car, regardless of whether it’s on a business or personal agreement.
As part of any PCH (Personal Contract Hire) or BCH leasing agreement, the company or individual will also be required to take part in a quick credit check. This isn’t to scrutinise your income and outgoings but acts as a way for the finance company to make sure you can commit to the agreed monthly payments for the car.
Can I claim back on anything with a PCH agreement?
If you use your privately leased car for occasional business trips, you may be able to claim back some costs to cover fuel, servicing and other costs. You’d need to keep a record of the vehicle’s business use in order to do this (distance travelled, any fuel costs and a brief description of each journey). Also, this would need to be agreed with your employer, as well as your insurance provider.
What are pool cars?
A pool car is a company car used by employees but is kept at the company’s address outside of business hours.
Unlike other BCH deals that are subject to company car tax, pool cars are exempt. However, they strictly can’t be used for personal journeys.
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Want to find out more about what personal and business leasing involves? Then visit our guides page for everything you need to know.