When it comes to leasing a vehicle, you'll be presented with either personal or business options. It's important to understand the difference between business and personal car leasing to ensure you make the right choice for your needs. Our helpful guide explains what business and personal leasing is and why business leasing has cheaper monthly payments.
What Is A Business Lease?
A business lease is a contract agreement for limited companies, sole traders, partnerships and LLPs to lease company cars with fixed monthly payments. The leased vehicles can be used for both business and personal use.
There is an initial payment, sometimes referred to as a deposit, which is paid as your first rental. The initial payment amount will be a multiple of the monthly payment and is often 3, 6, or 9 times the cost of the fixed monthly fees that follow. This arrangement is communicated as 9+35 which would be 9 months upfront followed by 35 fixed monthly payments.
Vanarama offers Business Contract Hire (BCH) in which the car is hired for a set period of time with pre-arranged mileage and returned at the end of the contract. The annual mileage of business lease cars is usually higher than personal leasing due to the day-to-day additional motorway and long-distance miles business vehicles are likely to drive. The top end of mileage agreements for BCH is usually around 40,000 with excess mileage charges payable by the company if this is exceeded.
About Company Car Tax
Company cars are often provided to employees as a reward. The HMRC levies this type of reward with company car tax which is known as Benefit In Kind.
If a business lease car is used for personal journeys then you'll need to pay company car tax. Private use of a company car is known as a Benefit In Kind and can add between £800 and £300 to your yearly tax bill. This cost is dependent on how much CO2 the car emits. Find out more in our guide to whether you should take a company car or a cash allowance.
What Is A Personal Lease?
Vanarama offers personal lease deals on Personal Contract Hire contracts and does not offer Personal Contract Purchase (PCP).
Personal Contract Hire (PCH) works in the same way as Business Lease Hire, except that it is only for an individual with the vehicle used only for personal use. You'll have the same type of initial payment with fixed monthly rentals following while you drive your brand new car. At the end of your contract, you simply hand the car back with no end of term or balloon payments.
For personal leasing, an average annual mileage allowance is usually closer to 10,000 miles. This is flexible, but remember increasing your mileage will increase your fixed monthly costs.
Why Is Business Car Leasing Cheaper Than Personal?
Personal car leasing deals always include VAT within the advertised cost. Business lease deals are cheaper than this because 50% of the VAT can be claimed back, providing that the company is VAT registered. Businesses can also claim back VAT on maintenance agreements that are taken out on the lease car.
Take a look at our range of car leasing options with a handy option to switch between personal and business pricing.