Utilising a Business Contract Hire (BCH) will allow a company to provide its employees with a car that can visually represent what its business is about.

Leasing a car or a fleet of vehicles can also be tax efficient for a business, as leasing payments are tax allowable expenses and will help a company reduce its tax bill.

Furthermore, a business that is VAT-registered will be able to reclaim 100% of the VAT if the leased car is exclusively used for business purposes. Companies can also claim back 50% on the financial part of the rental if the vehicle is used privately as well.

Opting for a Business Contract Hire can also help a company to protect its capital as money that may have been spent on a fleet of vehicles can be invested elsewhere in the business.

In addition, as leased cars will not appear on a company’s balance sheet, opting for a contract hire will help with gearing.

Business Contract Hire explained

With a Business Contract Hire, a company simply pays a car finance company a fixed monthly amount in order to lease a vehicle for a fixed duration.

The monthly payments are calculated based on the vehicle’s expected depreciation. A vehicle’s depreciation is the difference between its purchase price and resale value at the end of the leasing period, taking into account its age and mileage.

Depending on the finance company being used, servicing and maintenance costs may be included into the leasing agreement.

At the end of the contract, the leased vehicle is returned to the finance company. An extension can be negotiated but this depends on the company that is providing the vehicle for leasing.

Business Contract Hire example

The following is an example of a Business Contract Hire leasing agreement for a company wanting to lease a Volvo V70 D2 115bhp Powershift Business Edition.

In this example, the business’ leasing contract will be for 36 months, with fixed monthly payments of £325 and an agreed maximum mileage per year of 10,000 miles.

A breakdown of the payments is shown below.

Contract Length - 36 months
Mileage per annum - 10,000
Initial Rental - £1,950.00
Monthly Rental - £325

Pros:

  • A contract hire is budget friendly; fixed monthly payments and a low deposit fee are easy to see and understand on a business’ cash flow
  • Furthermore, contracts that include maintenance costs and road tax can help to reduce fleet administration overheads
  • If customers are VAT-registered, they can reclaim 50% of the VAT on finance payments. Additionally, they will also be able to claim 100% of the VAT back on a maintenance agreement.

Cons:

  • If the drivers exceed the agreed mileage in their vehicle, the business will incur financial penalties
  • As the business will not own the vehicle, comprehensive insurance will need to be taken out
  • There is no option to purchase the vehicle if the business wishes.

Why should I opt for a Business Contract Hire (BCH)?

A Business Contract Hire is the most popular choice of leasing for companies. This form of leasing is easy to utilise, budget-friendly and allows a business to update their fleet regularly.