Leasing a company car through your business can offer a range of financial advantages beyond the appeal of driving a new vehicle every few years. From tax-deductible costs to reclaiming VAT, leasing can be a smart and efficient way to manage your business vehicles without the upfront expense or the responsibility of depreciation.
In this guide, we’ll explore the main tax benefits of business car leasing in the UK and highlight why this approach is becoming increasingly popular with companies of all sizes. Whether you’re looking to lease one vehicle for yourself or an entire fleet, this blog will give you a clear overview of what you can claim and how to make the most of the available allowances.
As automotive experts and brokers — not accountants — we always recommend speaking to your own financial advisor for tailored advice. That said, the information below is intended as a useful and up-to-date resource, drawing on trusted government and accounting sources, for those exploring their business vehicle options.
What Are the Corporation Tax Benefits of Leasing a Car?
One of the key benefits of leasing a vehicle is the ability to claim corporation tax relief on your monthly lease payments. This relief typically applies when the lease is classed as an operating lease - which is the case for most standard contract hire agreements.
For vehicles with CO₂ emissions of 50g/km or less, businesses can offset up to 100% of the lease rental costs against their taxable profits. This means your business could reduce its corporation tax bill while driving an electric or ultra-low-emission vehicle. For vehicles emitting over 50g/km, the allowable deduction is typically limited to up to 85% of the lease rental cost. This disallowance is designed to discourage use of higher-emission vehicles and aligns with the government’s wider green policy agenda.
This threshold was previously set at 110g/km but has since been revised in line with WLTP standards and the push for cleaner vehicles, as noted in HMRC guidance. For this reason, we always recommend speaking with your accountant or financial advisor and reviewing the latest tax rules and allowances.
Can I Claim VAT Back on a Leased Company Car?
Reclaiming VAT on a leased vehicle depends on how the car is used and the structure of your business’s VAT arrangements. In most cases, you can reclaim 50% of the VAT on the finance element of the lease if the vehicle is used for both business and personal purposes. If the vehicle is used solely for business, such as by a pool car or delivery vehicle with no private use, 100% of the VAT may be reclaimed, provided the appropriate evidence is kept.
It’s important to note that VAT cannot be reclaimed unless your company is VAT-registered and is charging VAT on its goods or services. If you’re not charging VAT to customers, then your ability to reclaim VAT is limited. This aligns with guidance from accountants and is supported by the practical rules laid out by HMRC. For clarity, refer to their internal manual on car leasing tax treatment.
Are electric cars better for company car tax savings?
Yes, absolutely — electric vehicles (EVs) currently offer some of the most generous company car tax savings available. That’s primarily down to their extremely low Benefit-in-Kind (BIK) rates.
As of the current tax year, a fully electric car lease attracts just 2% BIK – compared to 25–37% for some petrol or diesel models. This means that company directors or employees who are provided with an EV for business and personal use will pay far less in personal income tax.
There are also corporation tax advantages. Leasing an EV with 0g/km CO2 emissions allows your business to deduct the full lease cost, and in some cases, you may also be eligible for grants or incentives when adding EVs to your fleet.
To help with planning, AMT provides a BIK calculator on every car page so you can accurately understand what your tax liability will be before you commit to a lease.
Is maintenance and insurance deductible on a company lease?
If you opt for a maintained lease, the cost of servicing, tyres and breakdown cover is typically included in your monthly payment. These maintenance costs are generally tax-deductible as long as the vehicle is used for business purposes.
However, insurance is not usually part of a standard lease agreement. That said, the cost of insuring your leased vehicle through a business fleet or commercial policy can be deducted as a business expense. This applies whether you insure vehicles individually or through a multi-car fleet policy.
For tailored commercial insurance solutions, including prestige car and fleet insurance, AMT Insurance Solutions offers policies designed specifically for business use.
Do company directors benefit from business leasing?
Yes, company directors often benefit significantly from leasing through their limited company. Instead of purchasing a car personally, a director can arrange a lease through the company, allowing the lease payments, maintenance, and running costs to be offset against profits (subject to tax rules).
If the vehicle is also available for personal use, the director will incur a Benefit-in-Kind (BIK) charge, but this is often far more favourable — particularly for EVs or hybrid models — than the total cost of personal ownership.
Many small business owners, especially those operating as limited companies, find this to be one of the most tax-efficient ways to run a vehicle.
What happens at the end of the lease – are there any tax consequences?
At the end of the lease term, the vehicle is returned, meaning no depreciation to account for and no resale risk. Since you never own the car, there is no asset on your balance sheet and therefore no capital gains or losses to record.
In contrast, buying a car through the business may mean dealing with capital allowances, writing down the asset, and handling depreciation accounting — all of which require additional admin. Leasing avoids this complexity, keeping things cleaner from a tax and accounting point of view.
How Business Car Leasing Compares to Buying
Leasing allows a business to avoid tying up cash in a depreciating asset. Unlike purchasing outright or through hire purchase, leasing offers predictable monthly costs and no worries around resale value. Cars are returned at the end of the agreement, allowing the business to move straight into a new lease and keep up with changing emissions regulations, branding preferences, and technology updates.
Additionally, leasing helps maintain a professional fleet image, with modern vehicles often costing less to run and repair. For many SMEs and growing firms, this is a key advantage over the financial outlay and depreciation risk associated with ownership.
Business car leasing tax benefits: conclusion
For many UK businesses, leasing a car offers a strategic advantage in terms of tax savings, cashflow, and financial planning. Whether you’re a sole trader, SME or director of a larger limited company, understanding how VAT, corporation tax and BIK interact can unlock real value.
With low-emission and electric models offering even greater savings, and access to tools like our BIK calculator built into every car page, leasing through your business has never been easier to manage or justify.
As automotive experts, AMT Auto helps companies navigate the world of leasing, fleet management, and finance — but we always recommend speaking to your accountant for personalised tax advice.
For readers looking to explore business car leasing opportunities, AMT Auto offers a full range of flexible lease deals on business car leasing and car lease deals, including electric vehicles. While we are not accountants, we work closely with businesses across the UK and recommend you speak to your financial adviser or explore the latest government capital allowances information for updates on tax relief eligibility.
If you're considering leasing alongside fleet insurance cover, we also recommend visiting AMT Insurance Solutions for expert advice on motor and fleet insurance policies.
FAQs – Tax on car leasing through a Business
Yes. Limited companies can lease vehicles as long as the lease is used for business purposes. This can help manage cash flow, preserve working capital, and provide access to corporation tax relief and VAT reclaim options.
Lease payments are often deductible as a business expense, depending on the vehicle’s emissions. For cars emitting 50g/km CO₂ or less, 100% of the lease payments can usually be written off. For others, 85% is the current limit.
BIK tax applies if the vehicle is used for private journeys. It’s calculated based on CO₂ emissions, fuel type, and P11D value. The lower the emissions, the lower the BIK charge. All AMT Auto vehicle pages include a BIK calculator to estimate your cost.
Only if the car is used solely for business. If there's any private use, only 50% of the VAT on the finance element is reclaimable. You must also be VAT-registered and charging VAT to clients.
For many businesses, yes. Leasing allows for tax relief on monthly payments without tying up capital in a depreciating asset. It can be especially tax-efficient for low-emission vehicles.
You return the car with no obligation to buy it. There may be charges for excess mileage or wear and tear. This flexibility makes leasing appealing to many UK businesses.
Yes. AMT Auto can help you lease approved used vehicles from our network of trusted dealers, including high-end models suited to executive or director-level use. These used cars are often available on contract hire and still qualify for many of the same benefits.
It depends on your business needs. Individual vehicle insurance is fine for small fleets, but larger businesses may benefit from a dedicated fleet policy. Speak to AMT Insurance Solutions for tailored cover.
