Lease or buy a business car?
Lease rentals are a business cost, but above 50g/km, 15% of them never get tax relief. Compare leasing with buying a new car, after VAT and tax, over the same term.
Your answer
Enter the car's price, the lease rental and what the car might sell for to compare leasing with buying.
About this calculator
For a company or sole trader that will have a car either way and wants to know whether leasing it (contract hire) or buying it costs less once VAT and tax are counted.
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We don’t keep them. Your answers go to our server to do the sums and aren’t stored or logged. If you copy a link to your answers, they’re in the link itself, so only share it with people you trust.
How it’s worked out
Leasing: the rentals are a business cost and save tax at your rate. If the car's over 50g/km of CO2 (not electric), 15% of the rentals never get tax relief, unless you're a sole trader on the cash basis. A VAT-registered business gets back half the VAT on the rentals if the car can be used for personal trips, or all of it if it can't.
Buying: the price isn't a business cost. Instead it gets capital allowances. A new electric car gets the 100% first-year allowance if bought by 31 March 2027 (companies) or 5 April 2027 (sole traders). Other cars get 14% a year of what's left at or below 50g/km, 6% above. VAT on the price only comes back if the car is never available for personal use. On finance, the interest is a business cost too.
When the car's sold, the price comes off its tax value. If it sells for more, some relief is taken back. If less, a company's relief carries on slowly in later years, which we don't count. A sole trader whose car is also used personally gets the rest straight away (a balancing allowance), cut to the business share.
Each total is the cash out over the term, less VAT back and tax saved, at one tax rate throughout. We assume a new car bought now, the same running costs both ways, and finance repaid evenly with no final balloon. Company car tax is the same whether a company leases or buys, so it's left out.
Worked example
Leasing costs about £2,351 less than buying over 3 years, after tax.
Company · petrol 120g/km · 36 months · 19% tax · VAT-registered · personal use · bought for cash
| A. Lease it | |
|---|---|
| Rentals: 38 payments of £400 (3 up front, then 35 a month) | £15,200 |
| VAT you claim back: half of the £2,533 VAT on the rentals | − £1,267 |
| Not allowed against tax: 15% of the £13,933 cost, because the car is over 50g/km (no effect on the cash) | £2,090 |
| Tax saved on the £11,843 you can set against profits, at 19% | − £2,250 |
| Cost if you lease it | £11,683 |
| B. Buy it | |
| Price of the car | £30,000 |
| What you sell it for at the end | − £15,000 |
| Tax saved by writing-down allowances, 6% a year (special rate pool) for 3 years: £5,082, at 19% | − £966 |
| Cost if you buy it | £14,034 |
Worked out using HMRC's published rates for the 2026/27 tax year (6 April 2026 to 5 April 2027), on a yearly basis.
Questions people ask
Is a leased company car taxed differently for the driver?
No. Company car tax is worked out on the car's list price and CO2, whether the company leases it or buys it. The same goes for the company's Class 1A National Insurance.
Why does 50g/km matter so much?
Above 50g/km, 15% of a car's lease rentals are never allowed against tax, and a bought car only gets 6% a year in allowances instead of 14%. Electric cars avoid both, and new ones get the whole price off profits in the first year.
Can I claim back all the VAT on a lease?
Only if the car is never available for personal use, which includes driving it home. Most business cars can be, so half the VAT on the rentals comes back. VAT on buying a car with any personal use can't be claimed at all.
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