Is it better to lease or buy a vehicle for your company?
If you’re a business owner or self-employed and you’re considering a new company car, you have an important decision to make: do you lease or buy? Both options have their own financial, fiscal and practical implications. In this article, we list the most important factors so that you can make an informed choice.
Our three forms of financing in a nutshell
There are three ways to finance a vehicle for your company:
- Leasing
- Renting
- Buying with an investment credit
If you’d like to quickly compare these forms of financing, visit our webpage: ‘Compare loans for company cars’.
Leasing or renting your company vehicle: preserve your cash resources
Financial leasing for businesses lets you pay a fixed amount each month. Financial renting is similar to leasing. You still pay back a fixed amount each month, but this is accounted for differently in your bookkeeping.
As a company manager, these solutions are ideal if you want to:
- avoid making a big investment up front
- capitalise the interest on your balance sheet as a business expense (leasing) or claim the monthly rental invoices themselves as a business expense (renting)
- repay the investment amount and the applicable VAT in instalments
- buy the vehicle afterwards by paying the residual value
However, you are responsible for maintenance, insurance, registration tax and annual road tax.
Buying your company vehicle with an investment credit
When you buy with an investment credit, you own the vehicle from the start.
This is a good idea if you want to:
- decide for yourself when to carry out maintenance or sell the vehicle
- depreciate the vehicle on your balance sheet for tax purposes (identical to leasing)
- record the credit and its interest as a business expense
Tax impact: sole-trader business or company
The tax treatment of a company car differs greatly depending on whether you are a sole trader or a company: As a sole trader, expenses and depreciation are accounted for directly in your personal income tax. As a company, there are different rules around deductibility, CO2 contributions and benefits in kind.
Detailed explanations on the tax aspects can be found in the article on the taxation of company cars.