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Should I buy or lease a car – for a sole trader (NOT A COMPANY)

Buying a car with cash or a loan

 The car is yours at the end of the agreement and it will usually cost less to buy a car than lease it.

The car can be included as an asset in the business and capital allowances can be claimed which will reduce the tax you pay. If the car has C02 emissions of more than 160 g/km then the capital allowances are less and the tax relief is less.

A proportion of the running costs can be claimed as an expense giving you further tax relief.


The car is not yours at the end of the lease unless you buy it , which is usually possible for a fee. So the car must be returned in EXACTLY the same condition or the lease company will charge you for repairs (Scratched alloy wheels, stone chip, dirty seat covers, etc). With a maintenance contract the car will be serviced and repaired (tyres included).

85% of the lease cost can be offset to the business and a proportion of the running costs can be claimed as an expense giving you further tax relief.

Cash flow may be easier with leasing especially if you can’t get a loan.

Example of a Private Lease (NOT through Company)

The following are from a real example from 2004 (some of the costs may be different nowadays)

The cost of leasing with a maintenance contract based on 10,000 miles bearing in mind that the service, tyres, repairs, Road Tax is paid for by the lease company worked out very reasonable once you take into account the interest cost of borrowing the money to buy a vehicle.


Mazda 6 List price         £18,000

3 years RFL                  £550

3 years service              £750

Repairs and Tyres          £700

Cost of Finance             £2160 – £3600 approx. The lower figure represents the approximate interest over 3 years if you invested £18,000 in a high interest account, The higher figure represents an approximate loan interest cost over 3 years

Total                            £20,000 + interest


Lease cost £285 x 45     £12,825 (3.5 years = 42 instalments plus 3 instalments as initial deposit)

Purchase value at end    £6,800 (residual Value after 3 years)

Total                            £19,625

If you don’t buy the vehicle at the end of the lease, you have to factor in the costs of repairing minor damage (scratched alloy wheels, stone chip, etc) before returning the car to the lease company.

It’s worthwhile playing a couple of companies off against each other when arranging the lease, you can save as much as £30 per month, when taken over 36 months that’s over £1,000.


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