Self-Employed Car Lease Guide

Can you lease a car if you are self-employed?

Yes, absolutely. Self-employed people and sole traders qualify for business leasing agreements as they fall into the eligible business categories. The most common type of business lease for the self-employed is Business Contract Hire (BCH).

This is similar to personal car leasing as you agree to lease a car for a fixed duration and monthly charge, and at the end of the contract, you hand the vehicle back.

Who qualifies for a self-employed car lease?

You must be classed as self-employed or a sole trader to be eligible for a self-employed car lease. The basis of this covers people that:

• Own a business
• Work for themselves
• Work for multiple clients
• Agree prices for their work
• Provide tools and equipment to complete a job

In addition to meeting the self-employment classification, a good or excellent credit score is typically needed for a successful application. Newly self-employed people are also not excluded from business leasing, but you may have to provide extra documentation or proof of income during the leasing process.

What's the process for taking out a self-employed car lease?

The process of getting a self-employed car lease is similar to other business leasing agreements. At Leasing Options, you also benefit from a dedicated Account Manager who can guide you through the necessary steps.

Here's what to expect when applying for a car lease:

1. Pick a lease car

First, choose a lease vehicle from the wide selection of business leasing deals available on the website. There is a vast range of models to choose from, including electric and hybrid cars.

2. Get a quote

Once you’ve decided on the car, choose your contract duration, mileage allowance and extras you require and request a quote.

3. Apply for finance

When you’ve received the quote, your Account Manager will take you through the finance proposal form to help you get the best deal for the lease. At this point, a credit check is performed to determine your suitability.

4. Sign the documents

With your finance agreement ready, it's over to you to sign, then the contract is completed. In many cases, this will be emailed to you to speed up the process.

5. Arrange delivery

In-stock lease vehicles are typically delivered within two weeks from the completion of the finance agreement. However, if your car is out of stock, your Account Manager will contact you once it's available to arrange delivery.

For more information on the process of leasing, check out our business leasing guide.

What will I need to take out a self-employed lease?

When completing your self-employed car lease, you'll need specific information to support your application. This includes:

Necessary information

• Personal details – Name, date of birth, address, property status and history
• Proof of ID
• Business Information
• Business bank account information

Documents that may be required

• Latest trading accounts
• Three months' worth of bank statements
• Proof of address

Learn more in our How To Get a Business Car guide.

Benefits of self-employed car leasing

Self-employed individuals enjoy a host of business leasing benefits when choosing this lease option. These include the following:

1. Fixed monthly payments

Fixed instalments agreed upon at the start of the contract help you to budget effectively and manage motoring costs easily. These payments are also tailored to the type of car you lease and how long you lease for. So you can choose a cost-effective option to meet your needs.

2. Road tax included

All business car leases come with Vehicle Excise Duty (VED) or, as it's otherwise known, road tax included.

3. Access to the latest vehicles

You always get a brand-new vehicle with a lease agreement, so you have access to various models with the latest technology, including electric cars.

4. No depreciation hassles

As you're not buying the car outright, you don't have to worry about its depreciation or the resale value.

5. Offset VAT

If your business is VAT-registered, you can claim up to 100% of the VAT back on monthly instalments.

6. Tax deductible

The cost of your monthly instalments and any packages, such as maintenance, can be claimed as a business expense. This makes it more appealing to sole traders than personal leases.

7. Covered by warranty

Every lease car comes with a full manufacturer's warranty and typically covers the whole of your lease period, so you have extra peace of mind if anything goes wrong.

There are also a few considerations to make before choosing a self-employed lease agreement, including:

• Mileage allowance – Consider the mileage carefully, as anything over your annual allowance incurs an excess fee
• You don't own the vehicle – At the end of the contract, you must return the car. Other car finance may be suitable if you want to own it outright
• Fair wear and tear policy – All lease cars are subject to fair wear and tear policies, so you'll incur penalties if you return it with excessive damage
• Ending a contract early – While it may be possible to terminate an agreement early, charges are applicable and can be costly

Can I claim tax back if I'm self-employed?

Yes! One of the main benefits for self-employed businesses is the tax benefit that comes with this type of lease. There are a few different ways you can reclaim tax, including:

Business expenses

The costs of your monthly instalments and the initial rental payment can be classed as a business expense in your self-assessment tax return. This means you can write off the full amount against your tax bill.

VAT

If you're VAT-registered, you can also claim up to 100% of the VAT back on your monthly instalments. If you use the car for personal reasons as well as business, you can reclaim 50% back. But if the vehicle is solely used for company reasons, you can claim 100% back.

For more information on tax benefits, learn more in our guide to car lease deductibles.

Can I claim back mileage with a self-employed lease?

Yes, you can claim mileage back. However, the process differs slightly from if you were claiming back mileage using a personal lease.

For business leases or company cars, mileage is reclaimed using a Fuel or Mileage Allowance. This is where you calculate vehicle expenses based on a flat rate the HMRC sets.

This is referred to as Simplified Expenses, and there is a set amount depending on the miles travelled.

However, it's important to note that HMRC states you cannot use this method “for a vehicle, you've already claimed capital allowances for, or you've included as an expense when you worked out your business profits”.

Do I pay company car tax if I'm self-employed?

Self-employed people and sole traders are exempt from paying company car tax, as there is no difference between you and your organisation.

Exemptions from company car tax also include:

• Owners of a business
• Partner of a business
• Member of Limited Liability Partnership (LLP)

If you decide to change the status of your business to a Limited Company (LTD), you will have to pay Business in Kind (BiK) tax based on the vehicle's emissions.

Check out our Company Car Tax guide for more information on Benefit in Kind tax.

Can I use a car for personal driving if I'm self-employed?

Business lease cars can be used for private journeys, including commuting to work. However, there are some aspects to consider when using it for this reason. For example, you can only claim 50% of VAT back if you're VAT-registered.

This option is typically more appealing than a personal lease, as in that agreement, you can only use the car for private use, and it is not tax deductible.

Is it better to lease or buy a car when self-employed?

If you're considering whether to buy or lease a car, it's best to compare the benefits of each option first. For example:

Benefits of leasing a car

• It's a great solution if you want to upgrade regularly
• Fixed monthly instalments make budgeting easier
• No depreciation or resale hassles
• Cheaper running costs
• Ideal for business travel

Benefits of buying a company car

• You want to own the vehicle
• No restrictions on mileage

Of course, there are also drawbacks to consider, especially with buying outright, such as the significant initial outlay, depreciation and resale value, higher maintenance costs and less flexible finance options.

Overall, there are often many more benefits of opting for a self-employed lease car as it provides a cost-effective and affordable business travel solution.

How much does my business need to make to take out a self-employed lease?

There is no set figure on how much a business needs to make before applying for a lease. However, it's important to consider that a finance company needs proof you can comfortably meet the monthly payments for the agreed term.

Your credit report will also support your income status, and there are also other options for securing a lease depending on your financial situation, such as:

• Affordable lease vehicles – Choosing a cheaper business car lease will help to keep costs down
• Shorter lease term – Shorter leases are typically cheaper than longer ones depending on the vehicle. This can help to manage your costs
• Lower mileage – Opting for a lower allowance also reduces the contract costs

Can I add signage to a lease vehicle?

Most leasing companies typically permit signage and branding. However, you must ask permission before adding anything to the vehicle. Finance firms understand that business cars may require signage, but there may be stipulations for modifying the vehicle.

As part of the fair wear and tear policy, at the end of the contract, the car needs to be returned as it was initially leased. So, signage must be removed by a professional to avoid damage.

If you're interested in leasing a car and are self-employed, our team can help guide you through the process. Contact us for a quote.