Should a start up run her car through the business or personally?
What is the eligibility for business leasing? What information do you need to provide the leasing company? For example, do you need to be VAT registered?
Question from Andrea Taylor
Here is our expert advice for Andrea on a start up wanting to lease a car
Starting up a new business presents all sorts of challenges and as far as transport is concerned there are various options; you’ve asked for some advice on leasing specifically and we’ll try to address the questions you have, but we’ll also summarise some alternatives.
The differences between business and personal leasing largely revolve around the taxation implications with a business lease being potentially more beneficial if you are VAT registered; though you don’t necessarily have to be VAT registered to take out a lease.
What you will need to supply to the leasing company
As a start up wanting to lease a car, you would probably find that you would be offered different terms compared with an established business, including perhaps a higher initial payment. The car leasing company may expect to see audited accounts and bank statements along with proof of address and ID for the main company directors, whose credit files may also be checked.
The differences between business and personal leasing largely revolve around the taxation implications
A personal leasing or contract hire arrangement may be simpler to execute but you would lose the VAT benefits and you should talk to your accountant about the best option in the light of your personal tax circumstances.
You should also talk to your accountant about the company car tax implications if your new small business is incorporated (a limited company), or if you are a sole trader in which case the tax treatment will be different – see I’m a sole trader, so what’s the best way for me to run my car on business?
Using your own car with AMAP payments to offset the running costs
Another option you could think about is to use your current car, if you already own one. This simple approach has the advantage of not involving an immediate impact on your cash flow, though of course you will need to make sure the car is properly maintained, MOT’d if necessary and ideally has warranty and breakdown cover.
Don’t forget that if using your own car your own car on business you can claim, tax free, 45p per mile for all your business mileage. This is available for the first 10,000 miles in any tax year and drops to 25p per mile thereafter – see Business mileage rates for using a private car (AMAPs).
Upgrading your car insurance to include business use
Your car insurance would also need to be extended to business use, which will probably involve an additional premium. You would have to do this whether you continued with your existing car or if you decided a car lease was the right thing for you.
Alternatively you might consider a short term rental arrangement which is pretty flexible but you should check that any mileage restrictions are acceptable; you should find that its possible to get allowed up to 3,000 miles per month before excess charges start to apply.
What about buying a car instead of car leasing?
You could of course choose to buy a car using cash, a loan or Hire Purchase. This gives the business an asset which can be sold if you do need cash urgently, though it would clearly be a rather drastic action to have to take.
If you do go for outright purchase, look for a brand with decent residual values, check out the running costs and buy from a franchised dealer in the interests of having reliable back-up if you do get any problems.
Alternative mobility solutions
In the interests of completeness we should also mention public transport, car clubs or daily rental as further alternatives, though I imagine you will have already discounted these. Whichever route you choose, key factors you’ll need to take account of are the cash needs and tax status of both the business and yourself, your personal attitude toward risk and your likely annual business mileage.
We hope your business has got off to a great start and will develop and prosper in the future.