What is an operational lease?
Operational lease means you rent a car for a fixed period. You pay monthly for the use of the car. That amount often includes maintenance, insurance, repairs and road tax. You return the car after the term, as you do not become the owner. This avoids financial surprises and makes your monthly costs predictable. This form suits entrepreneurs who want certainty in their costs and don't want the hassle of maintenance and resale.
Full operational lease
With full operational lease, almost all car costs are included in your monthly amount. The leasing company takes care of repairs, maintenance, tyres and insurance. You only have to pay for fuel or electricity. This makes it easy to plan and budget your transport as unexpected expenses are virtually non-existent.
Occasion operational lease
Occasion operational lease works the same way, but for a used car. The monthly cost is lower because the car is worth less. You get the same service and convenience. This form is interesting for sole traders who want a reliable car at a lower price.
How does operational leasing work?
You choose a car, determine its term and choose a mileage bundle. Based on these three components, the leasing company calculates your monthly amount. The more kilometres you choose, the higher the amount. You return the car after the term. Extra kilometres are calculated afterwards, so a good estimate prevents costs. Stopping the contract mid-term is usually expensive. At the end, you can choose a new lease car or drive temporarily without a lease.
Short lease for sole traders
Shortlease gives you maximum flexibility. You can often cancel per month. This is handy if you temporarily need a car for an assignment or if you, as a starting self-employed person, do not yet know how much you will drive. The monthly charge is higher, but you are not tied to anything for a long time. For self-employed people with unpredictable turnover or assignments, this is a safe option.
Business operating lease
With business operating leases, the lease is on your company. The car does not appear on the balance sheet, as the leasing company retains ownership. You book the monthly lease costs as business expenses. This reduces your profits and therefore your taxes. You have no risk of losing value and no major investment required. For entrepreneurs who want security and don't want to spend their time on car management, this is a logical choice.
Advantages
The main benefits of business leasing are listed below.
- fixed monthly costs without unexpected repair costs
- lease costs are fully deductible as business expenses
- no major investment required, keeping your liquidity available
- loss of value lies with the leasing company and not with you
Deductible as a self-employed person
You may deduct the full lease instalments from your profit. You may reclaim the VAT on the lease invoices if you are liable for VAT. If you also use the car privately, you apply a VAT correction for private use at the end of the year.
Cons
The disadvantages below will help you assess whether business leasing suits you.
- you do not become an owner of the car after its term
- monthly costs are higher than for buying or financial leasing
- More kilometres than agreed result in additional costs
- additional charges for more than 500 private kilometres per year
Addition
Addition applies as soon as you drive more than 500 private kilometres. A percentage of the catalogue value is then added to your income. If you stay under this limit, the additional taxable benefit will no longer apply, but you must prove this with a conclusive trip registration.
Operational lease for private individuals
Private operational lease is for consumers. The car is private property and you pay the costs from private. You do not include the contract in your business records. For business trips, you can use a kilometre allowance use. This form is simple and straightforward, but you have no business deductions. For self-employed people who drive mostly privately and only occasionally for business, this is a straightforward solution.
Advantages
You can clearly see the benefits of private leasing together below.
- fixed monthly costs without business administration
- no additional taxable benefit because the car is private property
- Insurance, maintenance and breakdown cover are usually included in the monthly fee
Cons
You will find the disadvantages of private leasing below.
- no tax deduction possible
- the contract counts as private debt and can reduce your mortgage space
- less flexible if you want to lease business later
The cheapest operational lease
The cheapest operational lease depends on the car you choose, its term and the number of kilometres you drive annually. A smaller car or a used car is almost always cheaper. A longer term lowers the monthly cost but limits your flexibility. Unexpected costs often arise from too many kilometres driven or premature termination of the contract. So a realistic estimate of your journeys is important.
Difference between operational lease and financial lease
The difference is mainly in ownership and tax treatment. With operational leasing, the leasing company retains ownership. You can deduct the full lease cost and you have little risk. With financial lease you become the economic owner. You put the car on your balance sheet, depreciate and can only deduct the interest. Financial lease gives ownership and control, while operational lease provides convenience and security. Which form is best depends on your budget, your mileage and how much responsibility you want to bear.
