🍦Leasing vs Buying: The Best Way to Put a Car Through Your Business

Hey friend —

Thinking about getting a car through your business?

Whether it’s for meeting clients, making deliveries, or simply making life easier, there are a few routes you can take - each with its own tax implications. I’ll break down the main options below in this guide.

🚘 Leasing vs Buying: What’s Best for Your Business?

The decision between leasing vs buying mainly comes down to a number of different factors.

Leasing (Contract Hire)

• Fixed monthly costs – easier for cash flow.

• VAT advantages – if the car is used 100% for business, you can reclaim 100% of the VAT. If there’s private use, it drops to 50%. Note, for 100% business use it either needs to be a pool car, kept at the office overnight and available for multiple people to use, or something specific like a taxi or a driving instructor’s car.

• No asset ownership – the car returns to the leasing company at the end of the term.

• Corporation Tax relief – claim the lease payments as an allowable business expense each month, the same as an insurance payment or business software.
  

  Top Tip: Electric cars often have better leasing incentives and lower Benefit in Kind (BiK) rates! More on that below!⚡

Buying with PCP or HP

PCP (Personal Contract Purchase) – lower monthly payments but a large final ‘balloon’ payment if you want to own the car. You can usually re-finance the balloon when it comes to it but usually at a higher interest rate.

HP (Hire Purchase) – higher monthly payments, but the car is yours at the end with no balloon payment.

Tax Perks:
Corporation Tax relief comes through capital allowances. Depending on the car's CO₂ emissions:

• 0g/km (electric cars): 100% first-year allowance

• Over 50g/km: Slower tax relief, based on writing down allowances.

What about VAT? Only reclaimable if the car is used 100% for business—which HMRC scrutinises closely.

💸 The Benefit in Kind (BiK) Factor

If you use the car for personal journeys (including commuting), it’s classed as a Benefit in Kind—meaning extra tax for you.

• Electric cars: Still ultra-low BiK rates (2% for 2024/25 and just 3% for 2025/26) ⚡

• Petrol/Diesel cars: Rates vary based on CO₂ emissions—higher emissions = higher BiK. This can be as high as 37% (compared to just 3% for electric cars).

The company also pays Class 1A National Insurance on the BiK amount. This is 13.8% for 2024/25 but will soon be 15% from 6th April 2025.

As an example, a new Tesla Model Y will cost roughly £60,000 and we’ll compare this to a new Range Rover Velar Dynamic SE at £60,000 as well. The Tesla is electric, whereas the Range Rover Velar is a diesel hybrid engine with CO2 emissions of 173g/km;

As you can see from the table above, the electric car means that even as a higher rate taxpayer, you can have significantly less tax to pay, as well as Employer NI being a lot less as well.

🔋 Why Electric Cars Are the Smart Choice

Electric vehicles (EVs) continue to be the most tax-efficient option for businesses. With a 3% BiK rate locked in until 2025/26, they offer significant savings compared to petrol and diesel cars. This means lower personal tax bills for employees and reduced Class 1A National Insurance costs for the company. (see the table above).

If you opt for PCP or HP to buy the EV, there’s another win: you can claim a 100% First Year Allowance (FYA) on the car’s cost. That means the full value of the vehicle can be deducted from your profits in the year of purchase—providing a major boost to your Corporation Tax relief. This is all upfront in year 1, whether you purchase outright or via PCP/HP.

Your company can also pay for the installation of an EV Charger at your home, which is exempt from BiK rates and fully tax deductible as an asset in your company too. Win win!

Add in lower running costs and potential government grants, and it’s clear why EVs are a future-proof choice for many businesses. 🌿⚡

🚚 What About Vans and Pickups?

Vans and pickup trucks come with their own set of rules—and often, better tax perks.

• VAT fully reclaimable – even if there’s some private use.

• No BiK (in some cases) – if the van is used solely for business or meets the "pool van" criteria.

• Simpler BiK rules – if there’s personal use, there’s a flat-rate BiK charge (£3,960 for 2024/25), plus £757 if fuel is provided for personal use.

• 100% First Year Allowance – available for new vans, regardless of emissions, making them attractive for Corporation Tax relief.

Pickup trucks with a payload over 1 tonne are usually classed as vans for tax purposes, giving you similar benefits. Just be careful—double-cab pickups can sometimes fall into a grey area, so it’s worth double-checking the specs. In fact, from April 2025, the Government have deemed double-cab pickups to be considered the same as cars for tax treatments, meaning harder VAT reclaim as well as higher BiK rates.

If you already own a double-cab pickup currently, or before 1st April 2025, you will have a grace period under the current 2024/25 rules until April 2029.

For businesses that need something practical yet tax-efficient, vans and pickups can be a strong choice. 🚛💨

✅ So, Which Route Should You Take?

• Leasing suits businesses wanting fixed costs and no long-term commitments.

• HP/PCP works if you want the car as a business asset and don’t mind upfront costs, and can also benefit from a large amount of tax relief in year 1. Useful if you have a high corporation tax bill coming up.

• Vans and pickups can offer big tax advantages - especially if used mainly for business. Just beware that double-cab pickup rules are changing from April 2025!

Low-emission and electric vehicles still offer the best tax perks in 2024/25 and 2025/26, so they’re definitely worth considering if you can handle the range and time waiting for recharging, etc.

Need help managing the numbers so you can focus on what matters most? At Cone Accounting, we’re here to support your journey. Let’s make 2025 your best year yet.

Written and edited by Ben Nacca