Why is business leasing cheaper than personal?

If you’re leasing a car, you’ll get a choice between business and personal leasing. They might sound similar, but there are important differences – including the price. Here’s the full low-down on the differences.

Check out our other leasing guides for more information:

• Should you buy or lease your car?
• Advantages and disadvantages of leasing
• What are the extra costs of car leasing?
• Leasing jargon buster
• What happens at the end of a lease?
• Should you lease your car through a dealer or a broker?
• Does leasing a car affect your credit score?

What is a business lease?

A business lease (quite often called Business Contract Hire, or BCH) is a contract deal that’s used for company cars. A VAT registered company can lease cars for a few years with fixed monthly payments, and the cars may be used by employees for personal use as well as business use.

Like with a personal lease, a down payment needs to be paid before the lease starts, and the length of the contract can range from a year to five years. The down payment is expressed as multiples of the monthly rental – eg a 6+23 deal means you have to pay six months lease costs up front, and then 23 monthly payments.

The annual mileage limit needed is quite often higher on a business lease than a personal one, because company cars tend to be subjected to lots of motorway miles. Generally, the maximum is 40,000 miles a year but, again, this can vary on different deals. If you cover more than the maximum mileage, the company will have to pay an excess mileage charge, and also any damage charges if repairs aren’t made before before returning the car. Sometimes companies do pass these charges onto the employees who drive the business leased cars.

What is a personal lease?

Personal Contract Hire (PCH) is very similar to a business lease, but for predominantly personal use – you’ll still pay an initial payment and then a fixed monthly payment for two or three years, depending on the deal. A mileage cap is included in a personal lease, too, so the same charges apply if you exceed it or if you damage the car.

With both BCH and PCH, the registered owner of the car is the leasing company – which you should remember to tell your insurance company too.

Why is a business lease cheaper than a personal lease?

Business lease deals are usually cheaper per month than a personal lease because you can claim 50% of VAT back on the monthly payments and all of the VAT on any maintenance agreements you take out. You can only get a business lease if you lease your car as a VAT registered company. That can make it considerably cheaper than a PCH contract – the price of a PCH should always include VAT.

When a car leased on a business contract is used for personal journeys, the mileage accrued must be deducted from the total mileage because it will be subject to the VAT you’d pay on a personal lease.

What is a pool car?

Often, companies will tell Her Majesty’s Revenue and Customs (HMRC) that their vehicles are ‘pool’ cars if they’re kept at the business’ address outside of work hours. If a company car is used for travelling to and from work, and any other personal use then it’s subject to company car tax, whereas pool cars are exempt but can’t be used for personal use.

Can I claim back business mileage on a PCH deal?

If you use a personal car for occasional business needs, you can claim back some of the cost to cover fuel, depreciation, servicing and other costs. You’ll need to keep a record of the business mileage you do, and you can get up to 45p per mile for the first 10,000 miles and up to 20p per mile for any miles above that number.