Business Contract Hire (BCH) is a long-term vehicle lease hire agreement of two to four years, suitable for sole traders, partnerships, and limited companies who don’t want to own the vehicle.
It is a popular option with VAT registered companies as they can claim back 50% of the VAT on vehicle payments (100% for vans) and 100% of the VAT on maintenance costs.
With Business Contract Hire, a company pays fixed monthly rentals for an agreed period (usually 24 to 48 months) for the use of a vehicle.
At the end of the agreement, the vehicle is returned to the finance provider, leaving them to worry about depreciation values and the disposal of the vehicle.
Contract hire allows a business to concentrate on its core activities while avoiding the financial risk and administrative burden of owning a vehicle or fleet.
Business Contract Hire offers many features over other types of lease agreements, including:
With Business Contract Hire, the monthly rentals are calculated by taking the following into consideration
The price of the vehicle at the start of the agreement, also known as purchase price or OTR value.
This acts as your first payment and is chosen by you before the start of your contract. This is usually equivalent to three, six of nine months rentals.
The yearly mileage allowance, as chosen by you before the start of your contract. You may be able to amend the mileage during the contract term.
How much the vehicle is likely to be worth at the end of the contract. This is calculated by taking into consideration the estimated depreciation value of the vehicle, which is the difference between the car's value at the start and end of the contract.
All of this helps estimate how much the vehicle is expected to be worth when the agreement ends. A monthly rental is then calculated to bridge the gap between how much the vehicle is worth at the start of the agreement, and its anticipated resales at the end - otherwise known as its depreciation.
At the end of the business contract hire agreement, you return the vehicle to finance provider, leaving you free to start a new contract if you wish.
Business contract hire is available to financially eligible sole traders, partnerships, and limited companies. To find out whether you’re likely to be eligible for finance, take our business finance eligibility questionnaire.
Business Contract Hire offers many benefits, including:
Like every type of finance agreement, Business Contract Hire comes with many considerations, including:
The table below explains the key differences between the contract types to allow you to make an informed decision about what is best for your business.
|Business Contract Hire (BCH)||Business Contract Purchase (BCP)||Finance Lease (FL)|
|Fixed monthly rentals||Y||Y||Y|
|Low initial outlay||Y||N||Y|
|Ownership of vehicle||N||Y||N|
|Tax Benefits||Monthly rentals may be offset against taxable profits*||Businesses might be able to claim tax relief on the interest charged across the period of the hire purchase contract*||Monthly rentals may be offset against taxable profits*|
|VAT||Y - 50% of vehicle rentals (private use) or 100% of vehicle rentals (business use) for VAT registered companies*. 100% on maintenance costs
||N - For commercial vehicles, you will pay VAT upfront but can claim back 100% if VAT registered*||Y - 100% of vehicle rentals for commercial vehicles for VAT registered companies*
|Inclusive road tax||Y||N – First 12 months only||N|
|End of contract||Hand vehicle back||Pay balloon payment or hand vehicle back||Sell vehicle to third party and pay funder outstanding balance|
|Mileage charges||Possible if exceeded||N/A if keeping vehicle||N/A|
|Damage charges||Possible depending on condition||N/A if keeping vehicle||N/A|
|Return flexibility||Fixed term – early term can be expensive||Fixed term – early term can be expensive||Fixed term – early term can be expensive|
* Please speak to your tax advisor or accountant for further information.
At the end of the contract, the vehicle is returned to the car leasing provider, meaning you are then free to hire another vehicle or vehicles, without any financial obligation.
If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a ‘pence per mile’ basis as set at the start of your contract.
When returning your vehicle, it will also be assessed according to the BVRLA Fair Wear and Tear guidelines. Any damage that falls outside of these guidelines may be subject to end-of-lease penalty charges.
For more information on this, visit our Fair Wear and Tear guide page.
As the property management firm is a VAT registered company, any VAT paid on the vehicle can be claimed back.
At the end of the contract, the Mercedes E Class is returned to the car leasing company. Joe Bloggs decides to take out an in stock business lease deal on the latest Mercedes E Class for a further 48 months.
John Smith is a sole trader, working as a painter and decorator. He needs only one van, so takes out a business contract hire agreement on a Ford Transit Custom.
Ply lining is applied to the van before it reaches Mr Smith to protect the vehicle and help reduce the risk of de-hire damage charges. Mr Smith chooses to apply his own company decals on his van to help promote his business on the road.
At the end of the contract, Mr Smith cleanly removes the decals before returning the vehicle to the leasing company. He then decides to purchase a different van for future use.
Please note: case studies created for illustrative purposes only.