Leasing vs Buying a Company Car

The real question: who carries the depreciation?

Strip away the jargon and the lease-or-buy decision is a question about risk. A new car is a depreciating asset: typically it sheds around half its value across the first three to four years, faster at the premium end of the market and less predictably for electric cars, where used values have moved sharply in recent years. Whoever owns the car owns that uncertainty. Buy, and your business carries it: the eventual resale value is unknown on the day you commit. Lease, and the funder prices its own forecast of the residual value into a fixed rental, then carries the outcome, good or bad.

Neither answer is automatically right. A business that buys well, keeps cars for six or eight years and sells sensibly can do perfectly well out of ownership. A business that changes cars every three or four years, values predictable costs and would rather deploy its capital in the business itself will usually find Business Contract Hire the cleaner instrument. The rest of this guide puts structure around that intuition, starting with where the money actually goes over a typical four-year cycle.

The four-year cost of ownership, component by component

Four years is the natural comparison window: it matches the most common lease terms and sits inside most manufacturer warranties. The table below walks the cost components side by side. Deliberately, there are no illustrative payment figures here - your own quotes and your accountant's projections should populate it - but the structure shows where each route wins and loses.

Framework comparison for general guidance. Populate it with quotes and projections for the specific car and term you are considering; your accountant can model both routes on your own figures.

Two components dominate in practice. Depreciation is the heavyweight, and it explains why leasing has grown fastest among businesses that replace cars regularly: over a four-year cycle the owner realises most of the car's lifetime value loss, then must go through the sale process to crystallise what remains. And the cost of capital matters more than it looks: money sunk into a wasting asset is money not working in the business, which is a real cost even when no interest is being paid. Our UK vehicle finance statistics guide shows how decisively UK businesses have shifted towards contract hire as a result.

Tax treatment: capital allowances against rental relief

The tax system treats the two routes quite differently, and the car's CO2 figure is the hinge in both cases. Buy, and relief comes through capital allowances. A new zero-emission car bought before April 2027 qualifies for a 100% first-year allowance, so the entire cost can be set against profits in the year of purchase - a genuinely powerful incentive for a profitable business buying electric. Away from that special case the picture is slower: cars at 1-50g/km attract writing-down allowances at 18% a year on a reducing balance, and cars above 50g/km at just 6%, which means a petrol or diesel purchase drags its tax relief out over many years.

Lease, and relief follows the rentals instead: each payment is a deductible trading expense as it falls, in full for cars at or below 50g/km and with a flat 15% disallowance above that line. VAT then tilts the same way. A company buying a car that has any private use normally cannot recover the VAT on the purchase at all, while a VAT-registered company leasing the same car can typically reclaim 50% of the VAT on the rentals, and all of the VAT on a maintenance package, depending on circumstances. For the driver's own tax position the funding route is irrelevant: Benefit-in-Kind follows the car's emissions whether the company owns it or leases it, which is why the 4% electric band dominates that side of the equation either way - our company car tax and BIK rates guide has the full tables.

The balance sheet: what actually changed in 2026

For years, one of the stock arguments for leasing was that the car stayed off the balance sheet. It is time to retire that line. For accounting periods beginning on or after 1 January 2026, the revised FRS 102 standard removes the old distinction between operating and finance leases: most leases, including car leases held by small companies reporting under Section 1A, now go on the balance sheet as a right-of-use asset with a matching lease liability. Only short-term leases under twelve months and low-value assets escape, and a car is not a low-value asset.

Does that weaken the case for leasing? Not really - it just relocates it. The substantive advantages were never accounting presentation: they are the fixed cost, the transferred residual-value risk, the VAT recovery and the alignment of payment with use. Those all survive. What the change does mean is that directors should expect their gearing and balance-sheet ratios to look different from 2026, and should ask their accountant how the new treatment lands in their specific accounts, particularly where banking covenants reference balance-sheet measures. Micro-entities and the precise transition mechanics are matters for professional advice.

A decision framework for directors

Put the cost, tax and risk threads together and the decision usually resolves along a handful of lines. Use the table below as a starting framework, then pressure-test the answer against your own cash position and plans. If you are weighing this as a company director, the Benefit-in-Kind arithmetic and the personal service company detail are set out in our guide to company car leasing for directors.

General guidance, not advice. The right answer depends on your company's cash flow, profitability, VAT position and replacement cycle - model both routes with your accountant.

Notice how often the electric question decides it. A profitable company buying a new electric car before April 2027 gets the one genuinely generous ownership incentive in the system. Set against that, leasing an electric car captures the same 4% Benefit-in-Kind for the driver, adds the VAT recovery on rentals that a purchase forfeits, and sidesteps the most volatile used-value segment of the market. Both routes have a real case; which one wins is an arithmetic question on your numbers, not a matter of fashion. Our electric car leasing hub covers the practical electric questions in depth.

How IVF helps you make the call

Intelligent Vehicle Finance is a phone-first, FCA-authorised leasing broker and BVRLA member. We are candid about the fact that we arrange leases rather than sales: what we bring to this decision is whole-of-panel Business Contract Hire and Personal Contract Hire terms across the full range of cars we can source, presented clearly enough to set against a purchase quotation like for like. We are a credit broker, not a lender, and we may receive a commission from lenders for introducing customers to them. Call 01752 429950, tell us the car and term you are weighing, and a named specialist will give you the leasing side of the comparison in writing, with no cost and no obligation.

Leasing vs buying FAQs

Sources

First-year and writing-down allowance rules are from gov.uk capital allowances. The lease rental restriction is from HMRC BIM47725. Benefit-in-Kind percentages are from HMRC's published 2026/27 tables. The lease accounting change is the Financial Reporting Council's periodic-review amendments to FRS 102, effective for periods beginning on or after 1 January 2026. Market context is from the BVRLA Leasing Outlook and SMMT registration data, as compiled in our UK vehicle finance statistics guide. Figures were correct at July 2026 and are refreshed as rules change.