Everything You Need To Know About Sole Trader Car Leases Explained

Having your own business comes with a lot of perks. Not only do you get the freedom of working for yourself and the chance to turn one of your dreams into reality, but you also gain access to a lot of business perks that you might not have considered before. 

One of them is to take out a business car lease, rather than a personal one. If you’re on the lookout for a new car or want to take advantage of this offer, keep reading to find out more about sole trader car leases.

Do I qualify for a business car lease if I’m self-employed? 

If you’re self-employed or a sole trader, you qualify for a business car lease. 

You don’t need to be in a particular type of industry or field. As long as you’re self-employed or if you’re a sole trader, that’s enough. However, there is one exception, and that is if you are a self-employed taxi driver. With the high mileage standard taxis do, leasing a taxi would be incredibly expensive so most brokers won’t offer it as a service. 

A few extra steps are involved in applying for a car lease, but we’ll get to those later. 

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What are the advantages of a business car lease? 

Leasing a car, rather than buying it outright, has a lot of advantages on offer, including the option to pay with monthly instalments that better suit your budget and cash flow. 

Leasing a car also gives you greater control over the length of the contract and the annual mileage. So, for example, if you need to hire a car for a particular project, you could select the length of the project as the lease time. Or, if you know you want to have the vehicle for the next two years as part of your business, you can create a lease plan to suit. 

But what are the benefits of having a specific business lease? Let’s explain: 

1. You don’t pay any company car tax 

Usually, a business will have to pay a Benefit in Kind (BIK) tax to use a car financed/owned by a company they work for. 

However, if you’re a sole trader or if you’re self-employed, there’s no legal difference between yourself and your company. So if you take out a business lease on a car, you won’t have to pay this tax. 

This could save you a lot of money – as a Vauxhall Corsa emitting 125g/km, CO2 could cost upwards of £984.90 per year. 

2. You can claim expenses on running costs

If you have a business car lease you can claim expenses in running costs.

If you have a business lease, you can actually claim back expenses on the running costs of your car

There are two different ways that you can do this. The first is to use a flat rate, in which you multiply your total number of business miles by a rate of 0.45p. So if you travel 7,500 miles for your business, you can claim £3375 back. 

If you’re claiming above 10,000 miles using the flat rate, the rate drops to 0.25 per mile after 10,000. 

The second method is actual cost. This is where you manually log all expenses for insurance, fuel, and road tax – as well as any MOT, repairs, and maintenance costs. 

An accountant will be able to help you work out the ins and outs of this and which method will be better for your business. If you haven’t got an accountant yet, check out our reviews for the best online accountants in the UK here. 

3. You can reclaim your monthly VAT

A business lease is much more affordable than a personal one because you’ll be able to claim back all of the VAT on the rentals – as well as any maintenance package that you have as an add-on. 

This means that you can simply enjoy the savings a business lease has to offer – or you could even upgrade your car to a fancier, more high-end model for roughly the same price. 

However, this is only applicable if you’re already VAT-registered, which might not be the case. You can find out more about VAT here. 

4. Your road tax is often included

Most business leases will also include your road tax inside your monthly payments. If you’re leasing a flashy sports car or another CO2 monster, this could save you around £2,000 a year. 

However, this isn’t guaranteed, so make sure you check the fine print. Some contracts will only include this for the first year, so make sure that you read it carefully. 

5. The finance can be off-balance-sheet

Business car leases can be kept off your business finances balance sheet. This means that if you’re planning on applying for a loan or investment, you won’t have this mark on your balances.

With fewer monthly outgoings, your business will look like a more attractive prospect to lend money to. It’s a win-win for you. 

What are my sole trader car lease options? 

Business Contract Hire, finance lease, or an operating lease are options you have as a sole trader.

When it comes to business car leases, there are a few options that to consider.

Firstly, you have a Business Contract Hire (BCH). This is the business version of a Personal Contract Hire (PCH), which gives you a fixed monthly fee for your car for the entire duration of your lease agreement. 

BCH is the most popular type of business lease option because they are the most straightforward. You pay a fixed monthly cost and agree to keep within the agreed annual mileage count. However, if you go over this amount, you’ll be faced with excess mileage charges, so it’s essential to set a realistic amount before you sign. 

A finance lease is the second type of business car lease that you can opt for. Like BCH, you’ll pay a fixed monthly cost for your car lease. However, there are no millage or condition restrictions to worry about, meaning you can drive as much as you please. 

The fixed monthly cost for a finance lease is calculated using the overall cost of your vehicle, the length of your contract, and the chosen end payment, called a balloon payment. This means that at the end of your contract, you will need to pay off this lump sum for the remaining cost of the car in order to keep it. If you don’t want to do that, you can find a buyer to pay off the remaining amount and sell the car or pay a fee to keep the lease for another year and delay the balloon payment. 

Finally, you have an operating lease. In most respects, an operating lease is much the same as a BCH business car lease contract. The only difference is that Road Tax is only included for the first year of this agreement, which means you’ll have to cover it for every following year of your lease. 

How do I apply for a business sole trader car lease? 

To get a business lease as a sole trader, you will need to pass a car lease credit check. In order for this to take place, you’ll need to provide some information about yourself, your business, and your financials. 

This includes: 

  • Your ID and proof of address;
  • Your personal address history, usually from the last three years;
  • Your date of birth and marital status;
  • Your business name, address, and contact information;
  • The type of business, for instance, a sole trader and the type of business that you do;
  • Your annual turnover and the latest set of trading accounts;
  • Your bank statements from the last three months.

Most of these documents are standard in any credit check, but you may need to provide extra information about your business if required. 

Once the credit check is complete and you’re all clear, you’ll have the green light to get your business car lease agreed. 

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

Nope! As we pointed out in the benefits of having a business car lease, you won’t have to pay the company car tax if you’re self-employed or a sole trader. 

You are also exempt from paying company car tax if you: 

  • Are the sole owner of your own business;
  • Are a partner or a small partnership;
  • A member of a Limited Liability Partnership (LLP).

This Benefit In Kind (BIK) only needs to be paid when you’re an employee working for a company that has a business vehicle that you benefit from. 

However, if you change from a sole trader to a Limited Company, you will then be eligible for company car tax. It could be an aspect to factor if you’re deciding between being a sole trader or a limited company. 

What expenses can I claim from a business car lease? 

VAT is only one of the expenses you can claim from a business car lease.

We’ve mentioned a few of these above, but there are a number of expenses that you can claim for if you have a business car lease. 

This include:

1. VAT

As long as your company is VAT-registered, you will be able to claim back the VAT on your business car lease. This will bring down your monthly payments quite considerably, meaning you could upgrade to a better model for the same price. 

If the car is used for both personal and business use, you’ll only be able to claim 50% of the VAT back. 

2. Mileage 

As we pointed out earlier, you can claim back the business mileage on your car, provided that it’s for business purposes. If you use your car for both business and personal reasons, you will need to work out the percentage of miles that were for business only before you make a claim to HMCR. 

3. Motoring expenses 

As well as the mileage, you can also claim car expenses such as: 

  • Insurance;
  • Repairs and Servicing;
  • MOT’s;
  • Road Tax;
  • Fuel;
  • Parking;
  • Hire Charges;
  • Vehicle Licence Fees;
  • Breakdown Cover.

This is provided that they are used for business purposes. For example, you cannot claim back for a personal parking ticket for non-business travel costs. You also cannot claim for any penalty fines, tickets, or travel between home and work. 

If you use your car for personal use, the amount you will be able to claim back for these expenses depends on the percentage of business millage that you use. 

Can you apply business signage to a leased car?

Yes! 

You can apply business signage to a leased car, provided that you are able to remove it with no damage before your lease is up. A great way to do this is through vinyl wrapping, where you can get logos and designs printed on vinyl and then applied to your leased car like a sticker. 

When it’s time to remove, it will be able to be cleanly taken off with no lasting marks. 

Having business signage on your car is great for building up awareness, as it turns your car into a moving billboard wherever you go, for a fraction of the cost.

Need more advice?

Before you jump into any kind of finance agreement, we’d always recommend talking to your accountant first to make sure that you’re picking the best option for you. 

For other business matters, tips and advice, we’ve got you covered at Business4Beginners. 

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