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Business car leasing vs buying

Whether a business should lease or buy a vehicle can be a tough choice, but to help you decide, we’ve compiled a list of the pros and cons of business leasing and buying to show you why leasing could be a better choice for your business and help you save money.

Should I lease or buy a business car?

Whether you lease or buy a company car comes down to the circumstances of your business. From available disposable capital to budgeting needs to what’s included, each will play a part in your decision-making on whether leasing or buying is right for you. Way up the pros and cons for your business to make a decision.

Benefits of leasing a business car

Here are the key advantages to leasing a business car:

Fixed cost motoring allowing for monthly budgeting
The most cost-effective way to drive a new car
Low upfront costs so you avoid using business capital
Avoid owning a depreciating asset
Drive a new vehicle every two to four years and stay on top of safety and tech releases
Road tax included as well as a manufacturer warranty and breakdown on most vehicles
Maintenance packages and insurance can be included
VAT payments are 50% reclaimable for business and personal use and 100% reclaimable for sole business use
Maintenance VAT fees are 100% reclaimable
Low BIK rates for vehicles with low CO2 levels

Things to consider before leasing a business car

But here’s what you should consider before leasing a business car:

Vehicles which produce high levels of CO2 will have a high BIK tax
Employees may be annoyed if they can’t have the car they want
You don’t own the vehicle so can’t sell it
If an employee leaves the company, the business is responsible for the vehicle
If mileage is exceeded, a fee will be charged
The agreement is set for a specified time and can’t be returned beforehand
The employee will need to take care of the vehicle to avoid charges

Benefits of buying a business car

Here are the key advantages of buying a business car:

The business owns the vehicle and can sell it at any time
No monthly payments if paid in full
No mileage limits
No charges for damage
You might be able to negotiate on price
You can modify the vehicle how you like

Things to consider before buying a business car

What you should think about before buying a business car:

Cars quickly depreciate, typically by 60% in the first three years
VAT will need to be paid on the price of the vehicle and can only be reclaimed if used exclusively for business use
If financing, it will likely be more expensive than leasing
Businesses spend a large amount of capital on vehicles
Road tax, breakdown and maintenance fees will have to be covered
Selling a vehicle can be a hassle
Vehicle management is time-consuming

Is it cheaper for a business to buy or lease a new car?

In the majority of cases, it’s cheaper for a business to lease a car rather than buy one. Buying a vehicle requires paying out a huge amount upfront rather than leasing which has a low upfront fee and relatively low monthly cost.

Road tax (always included), breakdown, maintenance and insurance can also be included for more cost-effective business motoring.

Other business motoring options

Not sure whether buying or leasing is right for your business? You could take out a salary sacrifice lease.

The salary sacrifice scheme lets employees take out a business lease through their company in exchange for giving up a small portion of their salary, usually working out as a cheaper option for both the employer and employees.

Which business shouldn’t lease a vehicle?

Business leasing will likely be best for most businesses but if you fall into the below category, it may not be suitable for your business:

If you’ll likely average more than 60,000 miles a year
If you need to modify your vehicle
If owning a vehicle is important to you
If you want a vehicle for five years or more

Business ex VAT

Personal inc VAT