Leasing a car for business is a strategic decision that can, if done correctly, improve your company’s tax efficiency and operational effectiveness. Here’s how vehicle leasing can benefit your business:
Tax benefits of leasing a business vehicle
Deducting lease payments
One of the most significant advantages of leasing a vehicle for business is the ability to deduct lease payments as a business expense. If the vehicle is used exclusively for business, the entire lease payment is deductible. For vehicles used for both personal and business purposes, you can only deduct the portion used for business.
For example, if a car is used 70% for business and 30% for personal use, you can deduct 70% of the lease payment. This deduction reduces your taxable income, effectively lowering your tax liability.
Avoiding depreciation complications
When you lease a car, you avoid the financial impact of depreciation. Depreciation involves calculating the reduction in value of the vehicle over time, which can be cumbersome. Leasing simplifies this by allowing you to deduct lease payments directly without worrying about depreciation schedules.
No Section 179 limitations
Section 179 allows businesses to deduct the full purchase price of qualifying equipment in the year it’s placed in service. However, this deduction has limits and specific criteria. Leasing avoids these limitations, making it easier to manage expenses.
Financial Management and Cash Flow
Lower upfront costs
Leasing typically requires a lower initial down payment compared to purchasing a vehicle. This means you can conserve cash for other investments or operational needs. The lower upfront costs help in maintaining a more flexible cash flow, allowing for better allocation of resources.
Fixed monthly payments
Leases usually come with fixed monthly payments, making it easier to budget and forecast expenses. Predictable costs help in financial planning and avoid the surprises associated with fluctuating maintenance and repair costs.
Preserving credit lines
Leasing a vehicle keeps your credit lines open for other business needs. Instead of tying up substantial funds in purchasing a vehicle, you can use available credit for growth opportunities or other investments.
Fleet management benefits
Regular upgrades
Leasing offers the opportunity to regularly upgrade to newer models. This means your business can benefit from the latest technology, safety features, and fuel efficiency without being stuck with an outdated vehicle. Regular upgrades can also enhance your business’s image and professionalism.
Maintenance and repairs
Many lease agreements include maintenance packages, covering routine services and sometimes even repairs. This reduces the administrative burden and unexpected costs associated with vehicle maintenance. Ensure you review the lease terms to understand what’s covered.
Reduced risk of obsolescence
Leasing reduces the risk of owning a vehicle that may become outdated or less efficient. By returning the vehicle at the end of the lease term, you avoid the problem of depreciating assets and can select newer models that align with your current business needs.
Record-Keeping and Compliance
Simplified accounting
Leasing simplifies accounting processes as you only need to track lease payments rather than managing depreciation schedules. The straightforward nature of lease payments makes it easier to maintain accurate financial records.
Accurate mileage tracking
It’s crucial to keep accurate records of the vehicle’s mileage to ensure proper tax deductions for business use. Using a mileage tracking app or maintaining a log can help substantiate the percentage of business versus personal use, ensuring you maximize your deductible expenses.
Other considerations
Mileage limits and excess charges
Leased vehicles often come with mileage limits. Exceeding these limits can result in additional charges at the end of the lease. It’s essential to assess your business’s driving needs and choose a lease with appropriate mileage allowances.
End-of-lease charges
Be aware of potential end-of-lease fees, such as charges for excess wear and tear or early termination. Review the lease agreement thoroughly to understand all potential costs and avoid unexpected expenses.
Credit requirements
Leasing typically requires a good credit score. Ensure your business’s credit history is in good standing to secure favourable lease terms.
Partnering with Flexed
We provide the ideal service for both businesses and personal customers who need a short-term car lease from anywhere between 28 days and 12 months.
We make it as easy as possible to lease a car for a set term and then return it, with no strings attached. We put our clients first, and our flexible service allows you to increase or decrease the length of your lease at any time, with only a 28-day commitment. You can check our prices at availability online and pick up your car as soon as the next day.
Drop us a quick email to talk@flexed.co.uk or chat with a member of our team NOW using our online ‘We Are Here!’ service – we’ll gladly answer any leasing questions you may have.
Find out more about our car leasing services and fantastic offers for both Business and Personal use. Give us a call today on 0800 311 8290.
