Leasing a car personally vs through my limited company

Determining whether to lease a car through a limited company is a common question among Directors.  The answer is complex, quite simply because it depends on your individual circumstances.

Each option has its pros and cons, and making the right choice can significantly impact your finances. In this blog, we’ll explore the financial aspects of both approaches to help you make an informed decision.

Let’s start by breaking down the fundamental differences between personal and company car leasing:

Leasing Through Your Limited Company:

• By leasing the car through your business, you can claim the lease cost as a tax-deductible expense.
• You can still use the car for both personal and business use.
• Potential for better lease deals designed for business users.
• Company car tax applies, but it’s often more cost-effective than personal car tax.
• Fixed car-tax rate if you use vans or pickups for business.

Leasing Personally:

• The car has no direct connection to your business.
• You have full control over personal and business use.
• You don’t pay company car tax.
• VAT is applicable at 20%, with no option to reclaim.
• Requires detailed records of business mileage for potential tax deductions.

What is company car tax?

If you lease a car through your company and use it for personal journeys, including commuting, you are liable for company car tax. The amount you pay depends on:

• Your vehicles CO2 emissions
• P11D Value: This value includes the car’s list price, optional features, and delivery charges.
• Your personal tax bracket further influences the amount of company car tax you owe.

To reduce company car tax, consider lower-emission vehicles or part-time personal usage, while contributing toward car costs. The HMRC website offers additional information on this topic here

While company car tax is unavoidable, the lease payments made to your car hire company are tax deductible for Corporation Tax purposes, offering potential savings.

Leasing a company van or pickup is calculated differently. Company car tax is determined by a fixed rate set at £3,960 for the 2023/24 tax year.  You will pay a 20-40% payment based on your personal tax bracket. For example, if you are a lower bracket taxpayer, you will pay 20% of the fixed rate amounting to £792.

This can be a cost-effective option if your business requires these types of vehicles.

Claiming Back VAT

If your business is VAT registered, you can claim back half of the VAT you pay for car leasing. This can lead to significant savings, which should be considered when evaluating the overall cost-effectiveness of leasing through your business.

Tax Efficiency Considerations

Tax efficiency depends on your car choice. Lower-emission vehicles, like plug-in hybrids, benefit from leasing through your business due to reduced company car tax. Conversely, if you opt for a high-emission, high-P11D value car, personal leasing may be more tax-efficient.

We always recommend that you discuss your purchase options with a tax professional or an accountant. If you don’t currently have one, reach out to us today to discover how we help creative professionals.