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BUSINESS CONTRACT HIRE GUIDE

Updated: Feb 20

Looking to hire a car, van or fleet of vehicles for your business? Business contract hire is a flexible and affordable solution which could help you to expand your operations. In this guide we explore all you need to know about business contract hire including how it works, who it’s for and how you can apply.

Learn more below or get in touch to discuss the different vehicle leasing options for your business. 

What we'll cover:

What is business contract hire?

Business contract hire is a form of vehicle leasing designed specifically for businesses. In this arrangement, a business agrees to lease a vehicle for a predetermined period, typically between 24 to 60 months, paying fixed monthly rentals. There’s usually an annual mileage limit agreed as part of a business contract hire arrangement too. 

Unlike hire purchase, business contract hire doesn't involve eventual ownership of the vehicle at the end of the agreement. Instead, the business returns the vehicle to the leasing company, and they may have the option to lease a new vehicle.

How does business contract hire work? 

To help you understand how business contract hire agreements work, let’s take a look at some the key features:

  • Fixed Monthly Payments: Businesses make regular fixed payments throughout the lease period, simplifying budgeting and cash flow management. Most commonly, the duration of these monthly payments usually range anywhere from 24 - 60 months.

  • No Ownership Responsibility: At the end of the contract, the business doesn't own the vehicle and can choose to return it. This arrangement eliminates concerns about depreciation and resale value.

  • Mileage Limits: Contracts often include mileage limits, with additional charges for exceeding the agreed-upon mileage. This is important for businesses to consider based on their typical usage.

  • Maintenance Packages: Businesses may have the option to include maintenance packages, covering routine servicing and repairs, which can be beneficial for budgeting purposes.

  • Tax Advantages: In some cases, businesses may benefit from tax advantages associated with leasing, as lease payments are often considered a deductible expense.

  • Vehicle Upgrades: Business Contract Hire allows for regular vehicle upgrades, enabling businesses to access the latest models and technologies without the long-term commitment of ownership.

Who is business contract hire suitable for? 

Subject to eligibility, sole traders, partnerships and limited companies may all be considered for business contract hire agreements. 

It’s most suitable for businesses that prefer using vehicles without the responsibilities of ownership. It provides flexibility, cost control, and the opportunity to regularly update the vehicle fleet. So it can be a really attractive option for businesses who have flexible transportation requirements.

Let's take a look at some more of the advantages below.

Business contract hire: the pros

There are several advantages to using business contract hire as a way to access much-needed vehicles for your business. These include:

Affordability

The most obvious benefit is that it's an affordable way to get vehicles that your business needs. Whereas, purchasing new vehicles outright would involve considerable upfront costs. 

Fixed costs

Monthly payments are fixed and typically fairly low, making budgeting more predictable and helping businesses to manage their cash flow effectively. 

No Balloon Payments

There’s no final or 'balloon' payment necessary at the end of the contract, as there is with some other forms of asset finance

No Asset Depreciation

At the start of your business contract hire agreement, the vehicle is assessed and depreciation is anticipated and incorporated into your contract terms. If the actual depreciation surpasses this estimate, there are no additional costs for you, ensuring no budgetary impact for your next vehicle.

Opportunity for higher spec vehicles

The cost-effectiveness of leasing often allows businesses the chance to drive more luxurious, higher-spec vehicles.

Claim back VAT

Businesses can reclaim 50% of the VAT on the finance rental when the vehicle is used for some private mileage. If the vehicle is solely used for business, you can recover 100% of the VAT. In the case of vans, the VAT reclaimable on lease payments aligns with the business usage percentage (e.g., 90% business use means 90% VAT reclaimable).

Business contract hire: the cons

As with all forms of finance, there may be some drawbacks that you'll need to take into account too before going ahead with a business contract hire agreement. These should be weighed up against any benefits to ensure that you are choosing the best finance option for your circumstances.

Some potential cons include:

Mileage

As part of your agreement with the lender you might be limited to a certain mileage. So you'll need to carefully consider how much you will need to use the vehicle during the time of the lease.

Damage beyond wear and tear

Some wear and tear is expected, but any damage done to the vehicles beyond this could end up costing you. So you should remind drivers to take extra care when driving and be mindful of things like eating or smoking in the vehicle.

You'll never own the vehicle

This one can be a pro and a con, depending on what your business requires at a specific time. But it's important to keep in mind that with contract hire you'll never own the vehicle, since there's no option to buy it at the end.

If you need a vehicle for a long time, other forms of finance may be more suitable. If you only need it for the period of the lease and you don't want to take on the burden of a depreciating asset, business contract hire could be a great option.

How to apply for business contract hire

To apply for business contract hire, check your eligibility online here or call us to learn more about the most suitable vehicle leasing options for your business. Our no-obligation application won't have any impact on your credit score.

To get started, all we’ll need is your name, business name, some basic business details, and what you are looking to finance.

Here’s a further breakdown of the application process with Approved: 

Fast application: 

You'll share basic information about you, your business and finance requirements. Either apply online by filling out our check your eligibility form or call us on 01908 429888 to speak to a member of our team. 

Receive your free quote: 

We'll get some more information regarding your business allowing us to tailor a solution that precisely aligns with your unique needs. By understanding the intricacies of your business operations and financial goals, we can craft the most suitable financing package for you.

Get your funds fast:

Once approved, our streamlined process ensures the swift transfer of funds directly to your preferred business bank account. Alternatively, if you have identified a specific supplier, we can facilitate direct payments on your behalf, ensuring a seamless and efficient financial transaction. 

Business Contract Hire FAQs

What’s the difference between business contract hire and personal contract hire?

Business Contract Hire (BCH) and Personal Contract Hire (PCH) are both types of vehicle leasing, but they differ in terms of eligibility, taxation, and the parties involved. 

Business Contract Hire is designed for businesses, offers potential tax benefits, and the primary use of the vehicle should be for business purposes. Personal Contract Hire is for private individuals, without tax advantages, and is intended for personal use.

See below for a further breakdown of the key differences between BCH and PCH: 

Business Contract Hire (BCH):

  • Eligibility: Only businesses can enter into a business contract hire agreement. The vehicle should be used primarily for business purposes.

  • Tax Implications: Businesses can often reclaim a portion of the VAT on the lease payments, making it a tax-efficient option. The monthly payments are usually considered a deductible business expense.

  • Ownership: The business does not own the vehicle. It is a rental arrangement, and at the end of the contract, the vehicle is returned.

  • Usage Restrictions: The vehicle is expected to be used primarily for business purposes, and there might be restrictions on mileage and personal use.

Personal Contract Hire (PCH):

  • Eligibility: PCH is a personal arrangement for individuals, and it's not typically available for businesses. 

  • Tax Implications: Individuals cannot reclaim VAT, and the monthly payments are not considered a deductible expense for tax purposes.

  • Ownership: Similar to Business Contract Hire, the individual does not own the vehicle. It is returned at the end of the contract.

  • Usage: The vehicle is for personal use, and there are usually no restrictions on private mileage.

What’s the difference between business contract hire and business contract purchase? 

Business Contract Hire (BCH) and Business Contract Purchase (BCP) are both forms of vehicle leasing for businesses, but they have distinct differences. 

Business Contract Hire is a rental arrangement without the option to buy, while Business Contract Purchase offers the possibility of ownership at the end of the contract term. The choice between the two depends on the business's preferences, long-term goals, and whether ownership is a priority.

See below for a further breakdown of the key differences between BCH and BCP: 

Business Contract Hire (BCH):

  • Ownership: With BCH, the business does not own the vehicle. Instead, it's a rental agreement where the business pays fixed monthly rentals for the use of the vehicle.

  • End of Agreement: At the end of the contract, the business returns the vehicle, and there is no option to purchase it. The business can then typically choose to lease a new vehicle.

  • Depreciation and Resale: The business is not affected by the depreciation of the vehicle, as it doesn't own it. There's no concern about resale value.

  • Fixed Monthly Payments: Payments are fixed for the duration of the contract, simplifying budgeting.

Business Contract Purchase (BCP):

  • Ownership Option: BCP offers the business the option to purchase the vehicle at the end of the contract. This purchase is usually based on a predetermined "balloon" payment.

  • End of Agreement: The business can choose to make the balloon payment and own the vehicle, sell the vehicle and settle the balloon payment, or return the vehicle without any further obligation.

  • Depreciation Consideration: The business may be more concerned about the vehicle's depreciation, as this impacts the balloon payment if they decide to purchase the vehicle.

  • Flexible End-of-Term Options: BCP provides flexibility at the end of the term, allowing the business to decide whether to keep, sell, or return the vehicle.

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