Personal Lease vs. Company Car: Which is More Cost-Effective?

If you’re a business owner or director considering a new vehicle but either lack the funds or don’t want to buy one outright, you might be weighing up the benefits of leasing a car personally versus getting a company car.

Taking the company car route, especially if you go electric, can lead to some great potential savings, which I’ll outline below.

Example Scenario

Let’s say you’re looking at a £60,000 electric car that costs £400 per month to lease (gross).  

These examples assume that you are a higher rate taxpayer and that your business pays Corporation Tax at the main rate of 25%.

Option 1: Leasing Personally

To afford the £400 a month lease personally, you’d need to draw a dividend of £603 from your company. This is because dividends for higher-rate taxpayers are taxed at 33.75%, leaving you with the £400 needed for the lease.

Annual cost to the company (via dividends): £603 x 12 = £7,236

Option 2: Company Car Lease

Now, let’s look at what happens if your company leases the car directly instead for a split of business and personal use.

• Monthly lease (excluding VAT): £333

• VAT (20%): £66.60

• VAT Recovery: £33.30 (Company can reclaim 50%)

• Effective monthly lease cost: £333 + £33.30 = £366.66

What are the tax benefits?

• Corporation Tax savings at 25% = £91.67

• Net monthly cost after tax savings: £366.66 - £91.67 = £275

Benefit in Kind (BIK) Tax

• BIK rate for electric vehicles: 3% of £60,000 = £1,800 annually

• Employer’s National Insurance (13.8%): £1,800 x 13.8% = £248.40, which qualifies for Corporation Tax relief

• Effective cost of NI after relief: ~£202

Personal Tax for the Employee

• 33.75% of £1,800 = £608 annually

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What does this mean for business owners?

For directors of limited companies, by using the company to lease the electric vehicle, the total annual cost drops from £7,236 to £3,502. That’s a saving of more than 50%.

However, this approach isn’t right for everyone. Below are some key factors to consider before placing any orders.

• You must go electric to benefit from the low Benefit in Kind rate.

• Insurance and maintenance may still fall on the company.

• Your personal tax situation may vary, and this plan will not work as well if you’re a basic rate taxpayer or don’t take significant dividends.

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We always recommend speaking to your accountant before getting started with company car leasing. If the numbers work, going electric through your company could be a very smart move. But it’s essential that you make sure the numbers do work!