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