Vehicle finance for business

Vehicle finance pays for a business’s vans, cars and fleets through hire purchase, lease purchase or contract hire. A van is a commercial vehicle: a VAT-registered business reclaims the VAT on it, and a company can claim full expensing on a new one. A car is treated differently for VAT, capital allowances and the director’s own tax, so the choice of vehicle changes the cost as much as the choice of finance.

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How business vehicle finance works

A funder buys the vehicle from the dealer and your business pays for it monthly. On hire purchase and lease purchase the business owns the vehicle at the end. On contract hire it hands the vehicle back and takes a new one. The funder registers its interest against the vehicle, so the vehicle cannot be sold until the finance is settled.

What the funder checks is the same as for any asset finance: the business’s accounts and bank statements, the credit files of the business and its directors, and the vehicle itself. Vans, pick-ups and mainstream cars have a deep resale market, which helps a young business. Specialist bodies, such as a refrigerated box, a tipper or a converted welfare van, are valued on a narrower market.

The funding search through Swoop is for limited companies and LLPs, and for sole traders and partnerships borrowing more than £25,000. A sole trader buying a single van for less than that is taking regulated credit, which the people introducing businesses here cannot arrange. A dealer’s own finance, the business’s bank or, for a new business, the Start Up Loans scheme are the routes for that.

Ways to finance a vehicle

Hire purchase

Deposit, fixed monthly payments and a small fee at the end, after which the business owns the vehicle. A company claims the capital allowances from the day it goes on the road. VAT on the full price is paid at the start.

Lease purchase

Lower monthly payments with a large final payment, after which the business owns the vehicle. For capital allowances it is treated like hire purchase only if the business accounts for it as a finance lease; check with your accountant.

Contract hire

An operating lease. A fixed monthly rental for an agreed term and mileage, often with servicing and tyres included, and the vehicle goes back at the end with charges for damage or excess miles.

Finance lease

The business rents the vehicle for most of its life and, at the end, sells it for the funder and keeps the share of the proceeds the agreement sets. VAT is charged on each rental.

Cars and vans compared for tax

CarVan or other commercial vehicle
VAT on buyingBlocked unless the car is used only for businessReclaimable under the normal rules
VAT on lease rentalsHalf blocked if there is any private useReclaimable under the normal rules
Capital allowances for a companyNew zero-emission car: 100% first-year allowance if bought before April 2027. 1 to 50 g/km: main pool. Over 50 g/km: 6% special rate pool. No full expensing or annual investment allowanceFull expensing if new; annual investment allowance new or used
Lease rentals deducted for tax15% disallowed if over 50 g/kmIn full
Private use by an employee or directorTaxed on list price times the appropriate percentage: 4% for a zero-emission car up to 37% in 2026-27Flat £4,170 benefit for private use beyond the insignificant, £798 for fuel, £0 for a zero-emission van

For VAT, a vehicle with a payload of one tonne or more is not a car. Most double cab pick-ups are treated as cars for capital allowances on spending from 1 April 2025 for corporation tax and 6 April 2025 for income tax, and for benefit in kind from 6 April 2025. Each is judged on the vehicle as a whole. Pick-ups bought, leased or ordered before 6 April 2025 keep the old treatment for benefit in kind until they are sold, the lease ends or 5 April 2029, whichever comes first.

Company cars and the director

If your company provides a car that you or an employee can use privately, the user pays income tax on a benefit in kind and the company pays Class 1A National Insurance on the same figure, at 15% for 2026-27. The benefit is the car’s list price multiplied by an appropriate percentage set by its carbon dioxide emissions.

Zero-emission cars sit at the bottom of the scale. The appropriate percentage is 4% for 2026-27, then 5% for 2027-28, 7% for 2028-29, 9% for 2029-30 and 10% for 2030-31, under the rates confirmed in the Budget on 28 October 2026. The top rate is 37% for 2026-27. A new electric car also gets a 100% first-year allowance for a company if it is bought before April 2027, so the company deducts the full cost in the first year.

For a director who owns the company, the choice between a petrol or diesel car and an electric one is one of the largest tax decisions on the vehicle, larger than the choice of finance. The example shows the yearly difference on the same list price.

Benefit in kind on a £45,000 company car

Illustrative example

A director paying income tax at 40% is given a company car with a list price of £45,000 in 2026-27. Compare a zero-emission car at 4% with a car at the 37% maximum.

Electric car: taxable benefit at 4%
£1,800.00
Director’s income tax at 40%
£720.00
Company’s Class 1A National Insurance at 15%
£270.00
Car at 37%: taxable benefit
£16,650.00
Director’s income tax at 40%
£6,660.00
Company’s Class 1A National Insurance at 15%
£2,497.50
Yearly tax and National Insurance saved by the electric car
£8,167.50

The figures cover one tax year and the benefit in kind only. Fuel provided for private use is taxed separately.

New industrial units beside a motorway junction near Luton

Vans and fleets

A van bought new by a company qualifies for full expensing, so a £40,000 van takes £40,000 off the company’s taxable profits in the year it goes on the road. A used van qualifies for the annual investment allowance. The VAT is reclaimable, and the driver pays no benefit in kind if private use is insignificant, such as a short detour on a work journey.

A fleet changes the conversation with a funder. Funders that finance fleets can agree a credit line for the business and add vehicles to it as they are ordered, each on its own agreement. Contract hire with maintenance included turns servicing, tyres and breakdown cover into one monthly figure per vehicle.

  • Hire purchase with full expensing for new vans the business will keep
  • Contract hire for cars replaced on a cycle
  • A fleet credit line for a business adding vehicles through the year

Choosing between hire purchase and contract hire

Hire purchase suits vans and trucks the business will keep for years and run hard. You own the vehicle, there are no mileage limits or return charges, and a company deducts the full cost of a new van in the first year. You carry the vehicle’s resale value and its repairs once the warranty ends.

Contract hire suits cars, and vans replaced on a three or four year cycle, where a fixed monthly cost matters more than ownership. Set the mileage at what you expect to drive. Excess mileage is charged per mile at the end, and damage beyond fair wear and tear is charged against the return standard written into the agreement. For a car with any private use, half the VAT on the rentals is blocked, and if it emits more than 50 g/km, 15% of the rental is disallowed for corporation tax.

Whichever you choose, insure the vehicle for its full value with the funder noted, and get the early settlement terms in writing before you sign.

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The monthly payment on equipment or vehicle finance with a deposit and a balloon payment, and what the finance costs in total.

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Questions people ask

Can a limited company buy a car on finance?

Yes, through hire purchase, lease purchase, a finance lease or contract hire. The company owns or leases the car, and if a director or employee uses it privately they pay benefit in kind tax and the company pays Class 1A National Insurance at 15%. A new zero-emission car bought before April 2027 gets a 100% first-year allowance for the company.

Can I claim VAT on a van bought on finance?

Yes. A VAT-registered business reclaims the VAT on a van under the normal rules. On hire purchase the VAT on the full price is paid at the start and reclaimed on the next VAT return; on a lease it comes with each rental. The block on reclaiming VAT applies to cars, and a vehicle with a payload of one tonne or more is not a car for VAT.

Is a double cab pick-up a van or a car?

For VAT, a pick-up with a payload of one tonne or more is not a car. For capital allowances on spending from 1 April 2025 (6 April 2025 for income tax), and for benefit in kind from 6 April 2025, most double cab pick-ups are treated as cars. Those bought, leased or ordered before that date keep the old benefit in kind treatment until sold, the lease ends or 5 April 2029.

Should my company lease or buy a car?

Compare the total cost after tax. Buying or hire purchase lets the company claim capital allowances, which for a new electric car is 100% in the first year. Leasing blocks half the VAT on rentals where there is private use and disallows 15% of the rental for cars over 50 g/km. The director’s benefit in kind is the same either way.

Do I pay benefit in kind on a company van?

Only if you use it privately beyond insignificant use. The van benefit is a flat £4,170, with £798 more if the company pays for private fuel, and zero for a zero-emission van. The figure is taxed as income, and the company pays Class 1A National Insurance on it.

Can a sole trader get van finance through a funding search?

The funding search through Swoop takes sole traders and partnerships borrowing more than £25,000. Finance of £25,000 or less to a sole trader is regulated credit, so for a single van below that figure use a dealer’s finance or your bank. A new business can look at the Start Up Loans scheme.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Assets and property

Asset finance

Asset finance spreads the cost of equipment, vehicles and machinery over the years you use them, with the asset as the funder’s security.

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Hire purchase for business

Hire purchase spreads the cost of an asset over monthly payments, and the business owns it once the last one is made.

Read more →

Equipment leasing

A lease lets the business use equipment for a monthly rental while the funder keeps ownership.

Read more →

Business funding for haulage firms

Truck and trailer finance, operator licence financial standing at November 2026, and the cash cycle of a haulage job.

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All business funding

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

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If a lender asks you to guarantee the company’s borrowing, our advisers can advise on life cover for that debt.

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