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Vehicle leasing for the self-employed, sole trader, partnerships

In the UK the majority of lease vans are leased by small businesses that are self-employed, sole-traders, and those in partnerships. If you’re one of these types of business and looking to lease your next car or van, then our comprehensive, easy-to-read guide explains everything you need to know.

Business and Personal Lease Contract Options

If you’re looking for a car or van for purely personal use, then a personal vehicle lease contract will suit you best. However, if you’re looking to use the vehicle (whether in part or whole) for business purposes, then it’ll be worth considering both types of contract options - a business lease and a personal lease contract – to see which will best suit you and your business.

Business vehicle leasing for the self-employed

Business car and van leasing offers businesses a whole host of excellent benefits.

Business vehicle leasing is when a car or van is leased in the name of one of the following entities and used for business purposes (but can also potentially be used for personal purposes as well):

  • A sole trader/self-employed person
  • A Limited Liability Partnership (LLP)
  • A Limited Liability Company (LTD)
  • A Public Limited Company (PLC)
  • A charity, embassy, local or government authority

Business leasing eligibility

As part of the application process for business vehicle leasing, the self-employed/sole trader/partnership will need to provide some or all the following documents as proof of eligibility:

  • Recent bank statements
  • Proof of ID and address

Business vehicle lease applications for the self-employed/sole trader/partnership also undergo a personal credit check (in the case of partnerships, all partners will need to provide their personal details), to help assess credit strength and risk status. This a relatively quick and easy process, however.

In some circumstances we may also require one or more of the following:

  • 3 months’ worth of the most recent business bank account statements
  • Last tax return

If your credit check proves successful, you’ll be in the great position of being able to choose between a business vehicle lease and a personal one. If this is the case, then it makes sense to consult your accountant or financial advisor about how the two options could differently affect both your business and personal tax situation.

Key Business Facts

For someone who is self-employed, a sole trader or in a partnership, the key business facts worth considering about business van leasing are:

  • You are exempt from having to pay company car or van tax (a significant business benefit)
  • Business mileage is reclaimable (as it is with personal vehicle leasing), albeit personal mileage remains taxable. To find out more, read our guide to keeping a vehicle mileage log
  • Up to 100% of monthly lease payments are reclaimable. For cars emitting 110g/km CO2 or less, 100% of the payment amount is reclaimable as a company expense, or 85% if CO2 is 111/km or above (lease payments are non-reclaimable if you have a personal car lease). Up to 100% of monthly lease payments are reclaimable for vans (regardless of emissions banding of the vehicle)
  • If you’re VAT registered, VAT paid on monthly leasing costs is reclaimable. 100% is reclaimable for cars where usage is 100% business, or 50% for mixed business-private usage (VAT is non-reclaimable under a personal car lease). 
  • For vans, the proportion you can reclaim directly reflecting the vans amount of business usage (i.e. if the van is used 100% for business, 100% can be reclaimed, if 70% then 70% can be reclaimed)
  • Your business can claim back up to 100% of VAT paid on any maintenance package, if you’re VAT registered (again, VAT is non-reclaimable under a personal car or van lease)

When Is Business Vehicle Leasing The Better Option (Than Personal Vehicle Leasing)?

  • If you’re VAT registered at the standard rate (as you’ll be able to gain more benefit and reclaim VAT expenses associated with the lease)
  • If your business can afford to meet all associated running costs (fuel, servicing, maintenance, repairs and replacements etc.)
  • If you’re happy to drive a car with a low CO2 emissions band or a vehicle such as a hybrid or electric (as there are business tax benefits to choosing low emission vehicles)

Personal vehicle leasing for the self-employed

Personal car or van leasing is when a lease contract is taken out in the name of an individual (not in the name of a business or company), in this instance the vehicle may be used for any purpose (i.e. for business and/or personal use).

Personal car/van leasing can be a useful way for either a new business with inadequate business documents, or a business ineligible for a business vehicle lease contract to be able to lease a brand-new car or van at an excellent rate, and at the same time enjoy some really great business benefits.

Personal leasing eligibility

With personal vehicle leasing, even if you intend to use your car or van in part for business purposes, your application will be considered as a non-business (i.e. personal) application.

To be eligible you will simply need to meet the following criteria:

  • Hold a full UK Drivers Licence (registered at your current address)
  • Be on the electoral role at your current address (if you have recently moved, some funders may require additional proof of current address)
  • Provide a minimum of 3 years address history
  • Have a regular, secure income
  • Provide a minimum of 3 years employment/education history
  • Be over 18 years old
  • Not been declared bankrupt, nor have CJJs or IVAs against your name

In addition, all applicants undergo a personal credit check to assess both their credit strength and risk status. This is usually a fairly straightforward, quick process, however.

The reason for the credit check is that finance companies make their decision on whether to provide finance to a customer based on their past and present financial circumstances. Naturally, it will be much easier for you to lease a vehicle if you have a healthy credit status, however, if you do have a history of poor credit, then you may still be able to lease through us using a funder who specialises in those with adverse credit history and/or those who have recently moved to the UK for work.

Key Personal Leasing Facts

Whilst a personal car or van lease contract would be taken out under your personal name (not under your business), there are a number of things that as a business owner (i.e. self-employed, a sole trader or in a partnership,) it’s worth considering:

  • The business may not be able to reclaim any tax benefit or VAT relief on the van (unlike with business vehicle leasing)
  • VAT on monthly lease payments needs to be paid in advance in full and may not be able to be reclaimed (unlike with business vehicle leasing)
  • Maintenance charges cannot be reclaimed (unlike with business car or van leasing)
  • Business fuel is still reclaimable (as with a business vehicle lease). To find out more, read our guide page on keeping a vehicle mileage log

When Is Personal Vehicle Leasing The Better Option (Than Business Vehicle Leasing)?

A personal car or van lease contract may be more suitable (than a business vehicle lease contract) if one or more of the following apply to your circumstances:

  • If you’re unable to meet the criteria for a business vehicle lease
  • If for personal reasons, there is a wish to retain the asset outside of the business
  • If you’re unable to meet the criteria for a business vehicle lease
  • If your car of choice has a high P11D value and/or is in a high CO2 emissions band (as the tax payable by your business will be high and you may have to pay more tax this way compared with if you took a personal lease and simply reclaimed for business mileage)
  • If you are in the higher rate tax band of 40% (as running a car through your business may be less tax advantageous for you than taking a personal vehicle lease, again you should seek tailored professional guidance to help you decide)

Information is provided as a guide only. Select Car Leasing cannot be held responsible for any personal or business decisions made as a result of information provided in the guides. As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is also advised that you take professional accounting advice before making a final decision.

If you'd like to speak with our friendly team about business vehicle leasing, simply call 0118 920 5130 or email us at: enquiries@selectcarleasing.co.uk

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