Leasing a car through a limited company: how it works and what it costs

Leasing a car through a limited company means your business pays a fixed monthly rental to use a vehicle for an agreed period, rather than buying it outright, and the car never has to sit on your own personal finances or credit file. Your company can usually deduct most of that rental as a business expense, though the exact VAT and corporation tax treatment depends on how the car is used and its CO2 emissions.

This guide covers the different types of company car lease, how VAT and corporation tax apply, the benefit in kind rules for you or an employee, and a change to lease accounting that takes effect from 2026. It also compares leasing with hire purchase and buying a car personally.

What does leasing a car through a limited company mean?

When your company leases a car, it signs the agreement, pays the monthly rental and drives the vehicle, but does not take on the cost of buying the car outright. Ownership stays with the leasing company throughout the agreement. At the end of the term, your company hands the car back, extends the lease, or in some cases takes an option to buy it. This is different from car finance more broadly, which also includes hire purchase, where your company works towards owning the vehicle. With every type of lease, your company is paying for the use of the car over a fixed term rather than for the car itself. That is usually why the monthly cost is lower than a hire purchase repayment on the same vehicle.

Leasing through the company also keeps the arrangement separate from you personally. The credit check, the agreement and the liability all sit with the business, in the same way any other company borrowing would, rather than with a director in their own name.

What are the different ways to lease a car through a limited company?

Three main types of lease are available to limited companies. The right choice depends on whether your company wants someone else to handle maintenance, and how much certainty it wants over costs at the end of the agreement.

With contract hire, agreeing a realistic annual mileage before you sign matters. Going over the agreed mileage usually means paying an excess mileage charge when you hand the car back. Whichever type suits your company, you can compare quotes for business car leasing across finance lease, operating lease and contract hire deals through Capitalise, with support from a dedicated funding specialist.

How much VAT can my company reclaim on a car lease?

Most limited companies can reclaim 50% of the VAT charged on car lease rentals where there is any private use of the vehicle, including commuting, which covers the majority of company cars. The other 50% is blocked as a standard allowance for that private use, regardless of how much the car is actually used outside work.

Full 100% VAT claim on the rentals is only available where the car is genuinely unavailable for private use. Examples include a pool car kept at your premises and never taken home, or a vehicle used in a trade such as a taxi or driving instruction. For most directors and employees using a leased car for commuting as well as work, the 50% rule applies instead. Where a lease includes a separate maintenance charge, the VAT on that portion can usually be reclaimed in full, since it is treated differently to the VAT on the rental itself.

Is a car lease tax deductible for a limited company?

Leasing a car is more straightforward for corporation tax than buying one, since your company deducts the rental payments directly as a business expense rather than claiming capital allowances. There is a restriction to be aware of, based on the car's CO2 emissions.

• Cars with CO2 emissions of 50g/km or less, including electric and other low emission cars, qualify for a full deduction, so your company can deduct 100% of the lease rental against its profits.

• Cars with CO2 emissions above 50g/km have 15% of the rental disallowed for tax purposes, so your company can only deduct 85% of what it pays. This threshold has applied since 1 April 2021, having previously sat at 110g/km.

This restriction sits alongside the VAT rule above, so a higher emission car leased with any private use can end up costing your company more in tax terms than the monthly rental alone suggests. It is worth checking the specific figures with your accountant before you commit to a lease.

Does benefit in kind apply to a leased company car?

Benefit in kind, or BIK, applies to a leased company car in exactly the same way as one your company buys outright, since it is based on how the car is used rather than how your company paid for it. If you or an employee can use the car privately, including commuting, HMRC treats this as a taxable benefit.

BIK is calculated by taking the car's list price, known as its P11D value, multiplying it by a percentage set according to CO2 emissions, then applying your personal income tax rate. Here is how the appropriate percentage breaks down for the 2026/27 tax year, using a selection of the published bands.

Check the full table on GOV.UK for the exact rate against a specific CO2 figure, since the published bands increase in small steps between these examples.

• A £35,000 electric car at 4% gives a taxable benefit of £1,400 a year, costing a higher rate taxpayer around £560 in personal tax, or £280 for a basic rate taxpayer.

• A £30,000 car in a 17% band gives a taxable benefit of £5,100 a year, costing a higher rate taxpayer around £2,040, or £1,020 at the basic rate.

Your company also pays 15% Class 1A National Insurance on the same benefit value, so a higher BIK rate affects the business as well as the individual driving the car. This is one of the main reasons electric and very low emission cars have become the more popular choice for leasing through a limited company.

Does leasing a car keep it off my company's balance sheet?

Leasing a car no longer keeps it off your company's balance sheet if your company reports under FRS 102, following a change from the Financial Reporting Council that takes effect for accounting periods beginning on or after 1 January 2026. Most leases, including the majority of business car leases, now have to be recognised on the balance sheet as a right of use asset alongside a matching lease liability, rather than simply expensed as they are paid.

Two exemptions remain. A lease of 12 months or less can still be expensed as before, and leasing a genuinely low value asset can stay off the balance sheet too, though a company car will rarely qualify as low value. Micro entities that report under FRS 105 are not affected by this change and can continue expensing lease rentals as they always have. This does not change what leasing actually costs your company, but it does mean a car lease will now show up as a liability on the balance sheet. It is worth flagging to your accountant if your company reports under FRS 102 and is used to treating leases as off balance sheet.

Should I lease a car or use hire purchase for my limited company?

Leasing usually suits a limited company that wants a lower monthly cost, values having a newer car every few years, and is not concerned with owning the vehicle at the end. Hire purchase suits a company that wants to build up ownership from day one and plans to keep the car for longer than a typical lease term. The tax treatment is different too. Leasing lets your company deduct the rental directly, subject to the 15% restriction above, while hire purchase means claiming capital allowances instead, at 100% for new zero emission cars, 14% a year for cars up to 50g/km, and 6% a year for anything above that.

Is it better to lease a car through my company or personally?

Whether it is better to lease through your company or arrange a personal lease and claim mileage depends mainly on the car's emissions and how much of its use is genuinely for business.

• Electric and very low emission cars are usually more tax efficient leased through the company, thanks to the low BIK rate, the full corporation tax deduction, and the 50% VAT recovery on rentals. Our guide on buying an electric car through your business covers the savings in more detail.

• Higher emission petrol or diesel cars are often cheaper leased personally, since a high BIK rate can outweigh what your company saves in tax. In this case, many directors lease the car in their own name and have the company reimburse business mileage instead.

There is no single right answer, since it depends on the specific car, how much of its use is genuinely for business, and your own income tax position. It is worth running the numbers, or asking your accountant to run them, before deciding which route suits you.

Am I eligible to lease a car through my limited company?

Most lenders on the Capitalise panel base a leasing decision on the company itself rather than the vehicle alone, so eligibility usually comes down to a mix of the following.

Being an actively trading UK registered limited company, usually with at least a few months of trading history, though several lenders on our panel will consider newer companies

• A business credit score that shows the company manages its existing obligations well

• Evidence the company can comfortably afford the monthly rental alongside its other outgoings

• A willing director in place to sign a personal guarantee, if the lender requires one

• A realistic annual mileage estimate, if you are applying for contract hire

Even if your circumstances are not perfect, such as a shorter trading history or a lower credit score, it is worth exploring your options, since some lenders on our panel specialise in cases mainstream banks turn down.

Start a car lease application for your limited company

You can compare business car leasing quotes across finance lease, operating lease and contract hire through Capitalise, with support from a dedicated funding specialist all the way through to completion. Just click ‘apply now’ to get started.