Business contract hire is a popular long-term vehicle rental agreement suitable for sole traders, partnerships and limited companies.
It’s a particularly popular option for VAT registered companies, as they can claim back 50% of the VAT for the supply of the vehicle.
How could it work for your business?
If your company leases a vehicle on a contract hire basis, you will pay to rent the vehicle in monthly instalments for a contract of 24 or 48 months, for example. Once the contract is up, the vehicle is returned to the leasing provider, leaving them to worry about depreciation values and disposal of the car or van.
Contract hire means your company can concentrate on its core activities, while avoiding the financial risk and administrative burden of owning your vehicle or fleet.
Is my company eligible?
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.
What type of company are you?
How many years have you been trading for?
How many years have you been trading for?
Businesses trading for under two years may find it difficult to obtain vehicle finance. This is because it is difficult for the finance provider to objectively gain insight into the business and the potential lending risks involved. New businesses may be required to submit 3 months business bank statements, management accounts (if available) and a director's guarantee (ltd companies only) to support your finance application. In some cases, a larger initial rental may also be required.
Would you consider a personal finance application?
Lending provider remains the owner of the vehicle, meaning the vehicle appears ‘off the balance sheet’ of your company
Fixed monthly rentals cover the rental of the vehicle, plus any maintenance options if chosen
The monthly rentals are calculated by taking the following into consideration:
The cost of the vehicle
The contract period
Anticipated residual value of the vehicle (how much the vehicle is likely to be worth at the end of the contract)
Mileage allowance (as chosen by you before the start of your contract)
Any additional options, such as a maintenance contract
Vehicle tax is provided for the full term of the contract
The key benefits of contract hire for business
Low initial rental
Fixed rentals for the whole package, making budget planning easier
Flexible terms to meet your company’s requirements, with variable contract duration and mileage terms
Contract hire removes depreciating assets from your company’s balance sheet, and the associated risks of owning vehicles, such as depreciation and disposing of the vehicle
Maintenance of vehicles can be included in the monthly fees, spreading the cost
Flexible invoice arrangements help to considerably reduce administration
If yours is a VAT registered company, you can claim back 50% of the VAT on the finance element
Considerations for contract hire for business
Early termination can be expensive
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
You must return the vehicle in a well maintained condition. Any damage over and above that stated in the Fair Wear and Tear Guide will be subject to additional charges
Vehicle must be insured with full comprehensive cover
You will never own the vehicle as there is no option to buy it
What happens at the end of the contract?
At the end of the contract, the vehicle is returned to the 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 guidelines page.
Business contract hire case studies
Case Study 1
Joe Bloggs owns his own Limited Company – a property management firm. He takes out a business contract hire agreement on a Mercedes M Class, as part of his fleet of three vehicles.
Duration: 48 months
Annual mileage: 15,000
Initial rental: £2897.95 +VAT
Monthly rentals: £482.97 + VAT
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 M Class is returned to the leasing company. Joe Bloggs decides to take out another business contract hire agreement on the latest Mercedes M Class for a further 48 months.
Case Study 2
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.
Duration: 24 months
Annual mileage: 20,000
Initial rental: £1473.00 + VAT
Monthly rentals: £245.50 + VAT
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 these 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.
Initial Rental £898.08 Excl VAT
Processing Fee: £195.00 Excl VAT
Subject to status and conditions
If your business is looking to lease a car or van on a contract hire basis, then browse our business leasing deals, or call our leasing specialists on 0345 811 9595 to discuss the options available to you.