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How Does Business Car Leasing Work? A Guide

How Does Business Car Leasing Work? A Guide

Business leasing, also known as Business Contract Hire (BCH), is a great way for you or your company to drive a brand new car without worrying about legally owning a depreciating asset, as well as taking advantage of a whole range of financial benefits.

Leasing a car for business is very similar to personal leasing - pick a vehicle, agree terms, pay monthly and hand it back at the end of the term (usually between two and four years). You’ll still need to stick to annual mileage allowances and pay for any damage incurred during the lease.

You can read our whole guide on how car leasing works, but for the purposes of this article, we're going to focus specifically on business contract hire.

Is car leasing right for my business?

Business car leasing is a great option for both small and large companies, with a host of financial advantages, from running costs to tax benefits. Some professions can’t take out a business lease – these are known as ‘Hire and Reward’ professions and include driving instructors or taxi drivers. 

  • You want to budget: Fixed leasing instalments will help keep vehicle expenses predictable allowing you to forecast monthly and annual budgets.
  • You want to protect business capital: Leasing means you don’t have to make a big initial investment and tie up business capital in a vehicle fleet.
  • You don’t want a depreciating asset: With leasing you don’t need to worry about residual values and how much the car is worth in the future, as you’ll be unaffected by depreciation.
  • You want a better car for less: As upfront costs are lower and you’re spreading the cost, it means you’ll be able to drive a much newer car with the latest technology and safety kit than if you were buying outright. Great for business image.
  • You want to regularly update your cars: If you want to update your business vehicle every two to three years then leasing is a perfect, hassle-free solution. You won’t have to worry about buying and selling and haggling over prices.
  • Your average mileage is medium to high: Most business leases are priced at this band of usage (around 10,000 miles a year) so you’ll be making the most of your monthly payments.
  • You want to offer employee incentives: Business leasing allows you to offer perks to prospective and current employees, such as company car schemes or salary sacrifice opportunities.
  • You prioritise employee safety: Making sure your staff are driving safe, smart and well-maintained cars is both ethical and good for company morale.
  • You want to reclaim VAT: If your company is VAT-registered you can claim tax back against your lease – up to 100% if the vehicles are used solely for business.
  • You want to offset costs against your tax bill: If the car is used primarily for business, then the costs associated with running and leasing it can be offset against your tax bill as well.

Many of the above apply to the majority of business fleets but there are some circumstances when signing up to a business lease might not be right for you:

  • You drive low mileage: If annual mileage is likely to be below 5,000 then a lease may not be good value as most are priced at mid to high usage (e.g. 10,000 miles a year).
  • Your car usage is unpredictable: Are your business circumstances likely to dramatically change in the next 12 months or so, or is mileage likely to vary a lot? If yes, then a lease where you commit up front may not be right.
  • You don’t qualify: If you don’t own a business, are not a limited company, partnership or sole trader you may not be eligible for a business car lease.
  • You want a car in a high CO2 emissions band: Should you need a vehicle that sits in a high CO2 band then the company car tax rate may outweigh other business benefits.
  • You don’t want to commit: Signing up for a lease means you’ll need to pay instalments for the whole term. Early exit fees can be expensive so you need to be happy to commit for up to three years.
  • You don’t trust staff to look after the car: At the end of your lease you’ll need to pay for any damage in line with the Fair Wear and Tear guidelines so make sure your employees know to treat their car well.

Step by step guide to business leasing with GRIDSERVE

  1. Select your model: Do you need to prioritise range or load space? Is an electric car sufficient or will your fleet include electric vans? Our search tool can compare EVs to help you pick your perfect car.
  2. Consider annual mileage: Work out how far you and your employees normally drive on a daily, weekly and yearly basis. When you sign up to a lease you agree mileage limits – if you exceed these over the course of the lease you may have to pay additional fees when the contract ends.
  3. Calculate deposit and lease length: If the lease requires it, work out what is the best deposit amount and term of lease to bring the monthly payments down to an affordable rate. You’ll normally have a choice between 24, 36 or 48 month contracts.
  4. Speak to us: Once you have an idea of the sort of lease that might be best, then speak to our team of experts to iron out the details – especially if you’re considering a fleet. We can help with charging solutions at depots or at home.
  5. Sign on the dotted line: Once you’ve dotted the Is and crossed the Ts it’s time to sign the contract on your lease.
  6. Collect your car: This is the fun bit… it’s time to collect your keys and drive away in your new car. Once your lease comes to an end, you’ll be able to hand it back and start the process again on a new model.

Why choose GRIDSERVE for your business EV leasing deal?

There are plenty of providers to choose from when it comes to leasing an electric car for your business but there are a few things that make GRIDSERVE Car Leasing a little bit different. Here’s why you we think you should choose us:

  • Plant power: We plant 100 trees for every new lease
  • Fully charged: We’re experts in all things EV and you can combine your lease with charging on the GRIDSERVE Electric Highway – plus we can support with charging solutions, such as at a depot
  • Expenses made easy: Charge regularly on the GRIDSERVE Electric Highway and you can sign up to our automated digital receipts service to get charging sessions sent direct to your inbox
  • Sun-to-Wheel: Our industry-leading chargers are powered exclusively by net zero carbon energy – part of our sun-to-wheel ecosystem
  • Cashback: You can benefit from cashback rewards for when you take out a lease with GRIDSERVE Car Leasing
  • Help at hand: We’ll be there to support you throughout your lease with our exceptional customer support
  • All inclusive: When you lease with us, we offer leasing contracts that include road tax, insurance and maintenance to take the stress out of running your car

What are the benefits of electric car business leasing?

We’ve explained why you might want to consider business car leasing and the benefits and savings you can make.

These advantages only get better if you lease an EV.

  1. Business reputation: Many customers are keen to see the businesses they work with making positive environmental changes. Leasing an electric car, instead of a petrol or diesel car, is one way to show you’re doing that.
  2. No emission charges: There’s no charge to drive in the Ultra Low Emissions Zones (ULEZ) or Congestion Charge in London, and that’ll be the case once any other cities introduce Clean Air Zones.
  3. Low Benefit-in-Kind (BiK): Employees who have use of a business lease car can benefit from low BiK tax rates. Better still, BiK rates for electric vehicles are very low: they will rise slowly over the next few years, but only by single percentage points. Use our company car tax calculator hereto get a more accurate idea of what you can expect to pay.
  4. Lower running costs: If you’re running a fleet and can charge at the workplace and make use of smart energy tariffs then you’ll see a big reduction on your fuel bills.
  5. Smooth driving: And finally driving an EV is extremely relaxing – you’ll find your employees are less stressed behind the wheel thanks to the silent cabin and smooth, gearless acceleration.

How is the cost of a business EV lease calculated?

There are several factors which affect how much you’ll pay for your business lease. Obviously, the more expensive the car the higher the monthly payments will be, but no two leases are the same with each customer able to tailor the contract to suit their own financial circumstances.

What you pay as part of your monthly payment will be most affected by the following:

The P11D value: This is the car’s value – it includes list price including VAT and delivery charges but not the registration fee or road tax.

The car’s residual value: While you don’t have to personally worry about the residual value and being left with a depreciating asset with a lease, the finance company will still take it into account when setting the monthly payment amount.

Your expected annual mileage: The more miles you want to drive, the more you’re likely to pay. Most standard leases allow for around 10,000 miles a year but there are some leasing contracts that will let you drive up to 30,000 miles without any excess fees.

The length of the lease: Taking out a longer lease will usually net you a lower monthly fee – normal term lengths are 24, 36 or 48 months.

The initial payment/deposit: The monthly payment will also be impacted by how much you pay upfront. A bigger initial payment or deposit will mean lower monthly fees.

Check out our company car tax calculator here to get a more accurate idea of what you can expect to pay.

Can I reclaim tax on a business lease?

Tax deductions are one of the primary reasons for opting for a business car lease. You can claim back up to 100% of the VAT on lease payments if you use your car for business use only, although if you use it for personal use as well you can expect to reclaim less – normally 50%.

Similarly, if you use the car solely for business purposes, you could be entitled to record the full fixed monthly payment, as well as charging costs, as a deductible business expense. This can then be offset against your tax bill at the end of the financial year.

What do I need to provide when applying for a business lease?

To qualify for a business lease, you’ll need to prove that you are one of the following:

  • Sole trader
  • In a partnership
  • Limited Liability Partnership (LLP)
  • Public Limited Company (PLC)
  • A local authority (health services, social services, education etc.)
  • A Limited Company
  • VAT registered business
  • A charity
  • An Embassy 

You’ll also have to pass a quick credit check to be given the green light by the finance company. For this to be successful, you’ll need a “good” credit score, although there’s no set score that will pass as requirements vary for different businesses.

All of this is designed to prove that you’re a fully-fledged business capable of making the monthly payments on time.

My business is new, can I lease an EV?

The answer depends on how new. As above, you’ll need to satisfy the finance company that you can keep up on monthly payments for the full term. New businesses less than three months old will struggle to get approved as there will be little evidence to show that instalments can be paid.

Generally speaking, if you can provide evidence for at least two years’ worth of trading then you should be cleared for a business lease.

However, there are some instances where a finance company may still sign off on a lease for a company that’s been going for less than two years. In these cases, you’ll have to provide supporting documents, such as bank statements, accounts and a director’s guarantee – a promise by a company’s director that they will pay the monthly rentals if the company can no longer afford them.

Can I lease a fleet for my business?

Absolutely. Fleet leasing is a great way for a business that requires transportation for staff to have access to new cars without having to foot the bill for hundreds of thousands of pounds in one go. Depending on the scale of your fleet (small, medium, large) the benefits and lease options will vary.

Either way, fleet deals can be worked out that provide affordable monthly payments along with vehicle support and fleet management tools. Contact our team of fleet experts who can help electrify your business. We can help with:

  • Optimising fleet cost
  • Fleet consultancy
  • Electrification strategy
  • Corporate charging infrastructure
  • Keeping your business moving
  • Fleet management tools

Read more at GRIDSERVE Electric Fleet Solutions.

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