Changing cars or buying a new one is not an easy decision in these times. Uncertainty about mobility regulations, coupled with the high value of new vehicles, leads drivers to consider other options. And, undoubtedly, one of the most popular is leasing.
This is especially true for the self-employed and companies. In this article we tell you about the tax advantages of leasing and why, in these cases, it can be a more interesting option than buying a new car.
What is leasing a car?
Although we have already explained in other articles what leasing is in detail, it is always worth a refresher.
Leasing is a contract for the rental of a vehicle for a period of approximately 2 to 5 years. Through this contract, a leasing company transfers the use of a vehicle, typically brand new, to a company or a self-employed person in exchange for the payment of a fixed monthly fee.
What does the leasing fee include?
The services included in the leasing fee tend to be broadly the same for everyone, although the details may vary from one company to another or depending on the needs of the lessee. In our case, the leasing fee for the self-employed and companies includes all services:
- Fully comprehensive insurance without excess
- Maintenance and repairs
- Tax payments and management
- MOT
- 24-hour roadside assistance
In other words, the companies and self-employed that decide to lease a vehicle only have to pay for the cost of fuel, since all the other associated expenses are included in the monthly payment.
Tax advantages of leasing for the self-employed
Below is a comprehensive list of all the benefits offered by this option for the self-employed:
Personal income tax deduction
Self-employed persons who pay a leasing fee for the vehicle they use only for their professional activity can deduct 100% of it as a personal income tax expense.
If the vehicle is not used exclusively for professional use, the deduction percentage is applied proportionally, as established by the Tax Agency.
VAT deduction
The VAT on the invoices for the lease payments can also be deducted. And, as above, the deduction can be up to 100% if the use is strictly professional and this can be proven.
Mixed use of the vehicle (i.e., for both business and personal use), leads to a deduction of up to 50% in VAT. However, it is important to be transparent with the Tax Agency in this regard, since they will carry out the relevant inspections to verify how the vehicle is actually used.
Tax advantages of leasing for companies
Below is an analysis of the main benefits of vehicle leasing for companies:
Corporation tax credit
Unlike the self-employed, companies can deduct up to 100% of the leasing fee in corporation tax as an operating expense if the vehicle is linked to the business activity.
What's more, since the vehicle is not owned by the company, it is not considered an asset, which can have a positive impact on the company's balance sheet.
VAT deduction
In this case, the VAT rebate is applied in the same way as for the self-employed. If the vehicle is for business use only, it can be deducted in full. On the other hand, if the vehicle is for mixed use, the percentage of 50% would apply.
Simplified accounting
For companies, leasing is not considered an investment, since it is not an owned asset, but a current expense. Therefore, it is much simpler to account for, since there is no need to consider depreciation or associated expenses.
Beyond taxation: other benefits of leasing
In addition to the positive tax implications outlined above, leasing has another series of advantages for the self-employed and companies:
- The initial investment is lower. When leasing, no down payment is required, which allows you to gain access to a vehicle without making a significant outlay.
- Periodic renewal. Once the leasing contract has expired, you can renew it by changing to a different vehicle, and always have a new car to drive.
- Fewer unforeseen expenses. By not having to deal with the costs of maintenance, repairs, taxes, etc., it is easier to forecast expenses without having to consider any unforeseen events.
- Promotion of sustainable mobility. Finally, opting to lease makes it easier to access hybrid and electric vehicles, thus reducing polluting emissions.
As you can see, opting to lease a vehicle if you are self-employed or have a company is not only a wise move on a fiscal level, but also from an environmental point of view. And to help you choose your vehicle, OK Mobility's team of experts is on hand to give you tailored advice based on your professional activity and your needs. As a result, all you will have to worry about is the really important stuff: growing your business.
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