Most importantly, it depends on the deal. So, get your calculator out! But do watch out for excessive mileage penalties in lease agreements.
Tax treatment varies depending on the method used to acquire a car – but it is often not tax efficient for a Company to own/lease a car because of high benefits-in-kind on company cars.
Car on HP (if the invoice is addressed to you/your company, it is an HP agreement or outright sale)
You can claim capital allowances on the purchase value of a car (dependent on the list price, CO2 emissions and type of fuel, possibly 18%, or 8% per year, even 100% for electric cars).
When selling the car, Sole Traders/Partnerships can get full tax relief on the car’s loss in value; Companies can’t claim this so have to keep on claiming the appropriate annual Writing Down Allowance (8% or 18%).
You cannot recover any VAT back on the cost of the car (excepting taxi and car hire businesses).
You get tax relief on the HP interest element of HP payments.
Leased cars (if the invoice is addressed to a third party such as a finance company, it is a lease agreement)
At the end of a lease period (for (say) three years), you either hand the car back, or buy it. Commonly there is a large down-payment followed by monthly payments and a final, optional, balancing payment..
If you are VAT registered, you can claim back 50% of the VAT on the lease payments (100% for taxi and hire firms) – which is a major advantage over HP agreements;
If the lease is one where the risks and rewards of ownership are effectively transferred (such that you are considered to be likely to pay the optional balancing payment at the end of the lease period to keep the car), then you should treat the car as an asset of the company, capitalise it, create a creditor account, claim capital allowances, and set the payments partly against the creditor and partly as interest in the Profit and Loss Account.
If the lease is one where the risks and rewards of ownership remain with the lease company which generally means that the final balancing payment is likely to be more than the car will be worth, you should treat the payments as lease expenses in the Profit and Loss Account. However, for cars with CO2 emissions over 50g/km, only 85% of the net lease costs obtain tax relief.