What is business car leasing?

Business car leasing, or Business Contract Hire (BCH), is a rental agreement that allows businesses to use a vehicle for a fixed period in return for monthly payments. Agreements typically run for two to four years, though shorter and longer terms may also be available.

Rather than owning the vehicle, leases are taken out in the company’s name and are available to limited companies, sole traders, partnerships, and other eligible organisations. Businesses can lease a single vehicle or multiple vehicles as part of a fleet, depending on their needs.

Before delivery, key terms are agreed upon, including the length of the contract, annual mileage allowance and initial rental payment. Mileage limits are usually based on expected business use. At the end of the agreement, the vehicle is returned to the finance provider, removing the need to manage resale or depreciation.

There are several types of business car leasing and finance options available, depending on whether a business wants flexibility, ownership or a route to purchase:

• Business Contract Hire (BCH): A rental agreement with fixed monthly payments over an agreed term. The vehicle is returned at the end of the contract, with no option to buy.
• Self-employed BCH: Works in the same way as standard Business Contract Hire but is designed for sole traders and self-employed individuals, with eligibility based on personal and business circumstances.
• Business Contract Purchase (BCP): Similar to BCH, but with the option to buy the vehicle at the end of the agreement by paying a pre-agreed final amount.
• Business Lease Purchase (BLP): A finance option where the business makes fixed monthly payments and takes ownership of the vehicle at the end of the term, usually after paying a final balloon amount.

What are the differences between a business and a personal lease?

Business car leasing works in a similar way to personal leasing, but there are a few key differences around who the contract is for, how the car is used and how tax is treated. Here are the key differences:

1. Usage: Business leases are, as expected, used for business purposes. However, you can also use your car for personal use (subject to company car tax). With personal leasing, you can drive your car to and from work, but it’s not typically used for business reasons.
2. Name on contract: If you opt for a business lease, the contract sits under the company name. In a personal lease, this is under an individual's name.
3. VAT and tax treatment: If you're VAT-registered, you can claim up to 100% of the VAT back and offset payments against your tax bill. However, personal leases do not offer VAT recovery or business tax benefits.
4. Costs and payments: With a business lease, monthly payments are made by the business and can cover a single vehicle or multiple vehicles as part of a fleet. With a personal lease, payments are made by the individual for one vehicle.

How does business car leasing work?

Here's what to expect when you lease a business vehicle:

1. Select your preferred car – Start by choosing a car that suits your business needs. This could be a single vehicle or multiple vehicles as part of a fleet. Factors to consider include size, fuel type, emissions, budget and how the vehicle will be used day to day. You can search our stock or explore different models to find the right fit for your business.
2. Configure your lease and request a quote – Once you’ve decided on the vehicle, you’ll have to agree on the key terms of the lease. This includes the length of the agreement, annual mileage allowance, initial rental payment, and any optional extras, such as a maintenance package. These details determine the monthly cost. When you’re happy, you can request a personalised quote.
3. Apply for finance – To proceed, the business completes a finance application. This involves providing some company details and is subject to a credit check to ensure the agreement is suitable and affordable. Our team will help you get the best contract based on a credit check and circumstances.
4. Confirm and sign the agreement – Once finance is approved, the lease documents are issued. These confirm the agreed terms of the contract, including payment amounts and responsibilities during the lease. After reviewing the paperwork, the agreement is signed to complete the order.
5. Arrange delivery – Your account manager will arrange delivery at a time and location that suits your business. If the car is in stock, delivery can be scheduled promptly. If not, you will receive an approximate date with details on when it will arrive.

Check out our guide on taking out a business lease for more information. At Leasing Options, our team of experts are available to help from start to finish, and you get a dedicated Account Manager to handle any questions.

Who can take out a business lease?

Most organisations can take out a business lease, including:

• Limited Companies (Ltd)
• Public Limited Companies (PLC)
• Self-employed/sole trader
• Partnership
• Limited Liability Partnership (LLP)
• VAT-registered and non-VAT-registered companies
• Charities
• Embassies

In most cases, finance providers will assess a business’s credit profile as part of the applications. While a good credit history can improve approval chances, business leasing with bad credit may still be possible in some circumstances.

Approval is not based solely on business type. Finance providers may also consider factors such as how long a business has been trading, its financial position, and its ability to meet monthly payments. New or smaller businesses may be asked to provide additional information as part of the application, such as financial records or forecasts.

Choosing the right business lease

Business leases are an ideal way to get the best company cars at an affordable monthly cost. But choosing the right lease involves more than just selecting a vehicle. There are a few considerations to bear in mind, including:

• Vehicle choice: Consider the most fuel-efficient models to reduce running costs or think about switching to an electric fleet for more cost savings. Take a look at the latest business lease special offers for more details.
• Contract length and initial payment: Lease terms and initial rental payments are flexible. A higher initial payment can reduce monthly costs, while the contract length should reflect how long your business needs the vehicle.
• Estimate your expected mileage: Calculate how much your business will use per vehicle to avoid any excess mileage fees.
• Maintenance options: Adding a maintenance package to your lease means you get servicing, repairs, and general maintenance included. For contracts of 36 months or more, MOT costs are also included. VAT on maintenance packages can usually be reclaimed in full.
• Costs of ending the contract early: If you need to end a business lease early, charges are applicable, which can sometimes be costly. It’s important you’re confident the agreement fits your business needs before committing.
• Wear and tear policy: Every lease includes a fair wear and tear policy, and any damage over this will incur a fee.
• Ownership: The vehicle is returned at the end of the agreement rather than being owned by the business.
• VAT and tax considerations: VAT recovery on monthly lease payments can vary depending on how the vehicle is used and the type of agreement in place. For cars, VAT recovery is often limited, so it’s important to confirm what can be reclaimed with the finance provider before entering into a contract.

Business leasing benefits

There are several business leasing benefits, such as:

• Motoring costs in one place – Fixed monthly payments include road tax, with the option to add maintenance, bringing key motoring costs into one monthly instalment.
• Improved cash flow management - Leasing avoids large upfront costs by spreading the cost, helping businesses manage cash flow and plan budgets more effectively.
• Access to the latest models - Upgrade regularly and benefit from new technology, safety features and fuel efficiency.
• Go green with ease - Business leasing makes switching to electric vehicles more accessible and cost-effective.
• VAT savings - VAT-registered businesses can reclaim 50% VAT on initial and monthly costs, rising to 100% if the vehicle is used exclusively for business purposes. You can even find company car tax rates as low as 2% for electric cars.

Explore more in our guide on the benefits of business car leasing!

What happens at the end of a business lease?

Returning your company cars at the end of a lease is straightforward. Here’s how the hassle-free process works:

Prepare for the end of the lease

Make sure the car is clean and remove any company belongings. Check for damage and confirm nothing is removed, such as the parcel shelf or spare tyre. Make sure you have all the required paperwork, including the V5, service handbook, and vehicle handbook.

Arrange collection

Contact your account manager to arrange the vehicle collection at a time that suits your business. Collections are usually carried out Monday to Friday, between 8 am and 6 pm.

Vehicle inspection and collection

When the collector arrives, they will inspect the vehicle in line with BVRLA fair wear and tear standards, checking for any damage beyond normal use. A report is completed and shared with you to review and sign. The vehicle is then collected for further inspection.

Any excess damage incurred beyond fair wear and tear will be invoiced and must be paid in full before the contract can be signed off and ended.

Renewals

If you’re upgrading your vehicle, you can start the renewal process as your current contract approaches its end. This way, your new car is ready when the existing vehicle is collected.

How does a business lease work with tax?

Fortunately, business car leasing offers several tax benefits, including:

• Road tax is included in your lease agreement, so you don't have to worry about a separate payment.
• As you’re not buying a car outright, a lease car doesn't appear on the balance sheet, and there are no depreciation costs to calculate.
• If you use a company car solely for business, you can claim 100% of the VAT back on payments. If there's an element of personal use, this drops to 50%.
• Leasing is tax deductible, so up to 100% of monthly payments, including the initial rental, can be offset against your corporation tax bill (limited companies only and depending on emissions). If you have company vans, 100% can be claimed, whatever the emissions level.
• If you opt for a maintenance package or are charged excess mileage fees, you can claim 100% VAT back, plus costs can be offset against your tax bill.
• BiK with business leasing is subject to emissions levels. But the lower the emissions, the lower the rate, so your employees will be paying less.

Check out our company car tax guide for more information.

Is leasing a car as a business right for me?

Leasing a car as a business may be the right choice if you want access to reliable, up-to-date vehicles without the long-term commitment of ownership. It can suit businesses that value predictable monthly costs, flexibility around contract terms and support throughout the leasing process.

The right lease will depend on your business needs, from vehicle type and mileage to how much guidance you want along the way. With a dedicated Account Manager, flexible delivery options and access to a wide range of manufacturers, Leasing Options supports businesses at every stage, helping ensure the lease you choose is suited to how your business operates.

Business leasing FAQs

Below we cover the most commonly asked questions about business leasing.

Why is a business lease cheaper than personal leasing?

Is a business lease worth it?

Can I lease a car if I'm self-employed?

Can a new business lease a car?

Are business lease payments tax deductible?

Can I buy the car at the end of a business lease?

What information do I need for a business lease?

What is the benefit in kind (BiK), and how does it affect a business lease?

Can a business lease be used for personal driving?

Can I lease a business fleet?

Do I need to maintain a business car?