A simple and cost effective way to fund any number of vehicles for your business
Business contract hire, or BCH car leasing as it is often referred to, is a fixed term and mileage-based agreement for the hire of a car or van for a set period. The term is usually between 2 and 5 years. It is important that your agreement reflects your predicted annual mileage.
The vehicle will not belong to you at any point in the agreement and so you cannot sell the vehicle. With a Contract Hire agreement you pay an initial rental followed by an agreed number of fixed monthly rentals and all rentals are subject to VAT at the prevailing rate for the specific period of hire you have chosen.
At the end of the agreement the vehicle must be returned to the contract hire company.
Business contract car hire and leasing arrangements have strict contractual conditions. If you wish to own or buy the vehicle these are not the best lease deals for you. Similarly, if you might need to change your vehicle early - early termination will incur charges. It's not a suitable arrangement if you would like to shorten your period of hire by pre-paying.
Your contract comes with strict agreed mileage terms and if you are unable to predict your mileage over the potential 48 months of an agreement this could be a poor choice. Business type restrictions, e.g. vehicles to be used as Taxis or for Driving Schools. If you plan to export the vehicle or use abroad for extended periods.
Low initial outlay and fixed monthly rentals. Choice of period of hire from 2 to 5 years and choice of mileage (minimum and maximum apply). Whilst the contract is based on a fixed mileage, you may be able to reschedule your agreement if your predicted mileage changes.
For peace of mind motoring optional maintenance plans are available, for an additional fixed monthly fee. Road Fund Licence is included for the duration of the agreement, though charges may apply reflecting future increases.
VAT on the rental is reclaimable if you are VAT registered – 100% on LCVs, 100% on the maintenance element for cars and LCVs, 50% on the finance element for cars (or 100% for cars solely used for business for example a pool car). Tax efficient – up to 100% of the rental cost can be offset against taxable profits.
The vehicle is simply returned at the end of agreement, removing concerns about disposal values and depreciation.
In this type of business car lease deal, the Contract Hire Company reclaims the VAT on the original purchase, which reduces your monthly rentals (which are + VAT). Contract Hire is a very popular choice for VAT registered companies as they can claim back 50% of the VAT on the finance element for cars and generally 100% for commercials (subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme).
On contracts with maintenance the VAT on the service element is 100% recoverable. One of the major benefits is that there are no disposal worries as the future value is underwritten by the leasing company. Another benefit of Contract Hire is that it is generally ‘off balance sheet funding’ (subject to legislation change) which means it can improve your gearing ratio (assets to borrowing ratio) and therefore possibly your borrowing ability in the future.
Lease cars on business contract hire must always be comprehensively insured. You must pay any additional charges that you incur for example a parking fine or congestion charge on time. If you don’t, the cost and/or fine will be issued to the finance company who will invoice this to you together with an administration charge that they will levy.
You must have the vehicle serviced and maintained by a main franchised dealer in accordance with the manufacturer’s recommendations and keep it roadworthy. If you do not service and maintain the vehicle, the funder will make a charge when the vehicle is returned as this will affect its value.
You may add a cost-effective maintenance package which will cover routine servicing, maintenance costs and tyres, subject to fair wear and tear plus breakdown assistance to enable easy budgeting and give you fixed cost motoring. If you include a maintenance package please note the funder may decline to settle any charges if the total mileage on the agreement is exceeded.
At the end of the agreement the finance company will assess the vehicle condition based on the standards set down in the British Vehicle Rental and Leasing Association’s fair wear and tear guide. Refurbishment charges may apply if the condition is not satisfactory.
If you exceed the total contract mileage you will be charged at the pence per mile as detailed in your agreement for the over mileage. When the vehicle is returned, it must have all items that were present when it was delivered for example, all keys, the locking wheelnuts. If any items are missing, you will be charged for the replacement.
Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter in to an agreement if you are comfortable with the financial commitment and terms.