Leasing company vehicles is becoming more popular as business owners choose leasing over traditional purchasing. Whether you manage a vehicle fleet, own a company, or you're a sole trader, a business contract hire is an affordable way to drive a new vehicle without needing to buy it outright.
We’ll explain how the business contract hire process works, as well as sharing the range of benefits it can offer you and your business, such as the ability to reclaim VAT.
In this guide:
What is business contract hire?
Business contract hire (BCH) is a popular type of leasing contract for business use. It is a low-cost way to get a new car or van that avoids the risks and administrative burden of owning the vehicle.
BCH is like a long-term car hire, enabling businesses to lease a car for a fixed period of time. You pay a monthly rental cost that is static during the lease contract, as well as an annual mileage limit.
Who is business contract hire best suited to?
BCH is suitable for companies of all sizes, sole traders, partnerships, and limited companies who don’t want to own the vehicle.
How does business contract hire work?
A business contract hire agreement is an accurate way of forecast and monitor cash flow for your fleet or business vehicle.
- Contract length - You can choose the length of the contract to suit your business’s needs. Most lease contracts tend to be for either two, three or four years.
- Fixed payments - The fixed monthly rental covers the cost of the lease as well as depreciation on the car.
- Deposit - You may have to pay a deposit before leasing your car, but it's usually cheaper than other finance options or buying a new car.
- Annual mileage – You can customise your lease with an annual mileage allowance to suit your projected needs. If your needs change and you need to increase your mileage allowance, you can change your agreement without incurring any penalties or excess mileage charges.
- End of contract - At the end of the contract hire term, you simply hand the car back to us and either walk away or choose a brand-new car and lease deal.
As you don’t own the vehicle, you don’t need to worry about selling it on after your contract has ended.
What are the main benefits of business contract hire?
Like personal car leasing, a business lease car is one of the most affordable ways to drive a new vehicle. More affordable monthly payments make leasing a brilliant cost-saving option for businesses of all kinds.
- Fixed monthly costs
Monthly costs remain the same for the duration of your lease - there are no hidden surprises. Your contract has fixed costs including the actual leasing service, maintenance, servicing and even the road tax.
- Avoid depreciation costs
When you start your contract you agree on a predicted level of depreciation. Any depreciation that may occur will not compromise your contract.
- VAT savings
Many businesses don’t realise that if you lease a vehicle exclusively for commercial use, you are able to claim back 100% of the VAT.
Even if the car is used as a private vehicle, you are still able to reclaim at least 50% of the VAT.
- Better cars for your company
As there is a reduction in initial outlay and ongoing costs you can consider newer, better cars for your business. This is good news when it comes to making the right impression on your customers and building your corporate image.
- Servicing and maintenance
Vehicle breakdowns and unforeseen trips to the garage workshop cause downtime and affect your reputation for reliability, both of which can hit your business in the pocket. Unexpected repair bills can delay your plans for improvements or business expansion. Driving a new car means there are likely to be fewer mechanical problems.
Read more about maintenance cover here.
- Administration
When running a vehicle from within a business, it is important that you have correct paperwork. We can handle all documentation that comes with a car, including tax discs, number plates, and MOT certificates. If you have any queries about any of these pieces of documentation, then you can simply contact us, and we can send a copy.
Things to consider
For businesses looking at car leasing as an option, there are a few additional factors to consider before taking out your lease,
- There is no building of equity with a leased car - you do not own the vehicle and there isn’t an option to buy it at the end of your contract
- You will need the amount of mileage you need and if you go over this, you will have to pay an excess mileage charge
- You must pay for fully comprehensive insurance cover
- If you lease a vehicle, you can't sell it or use it to pay outstanding debts
- If you find your organisation doesn’t need the vehicle anymore, you don’t have the option to sell or get rid of it - you are tied in for the full length of the lease contract
If you’re a small business or sole trader, there are a couple of advantages to a personal lease rather than a lease via a limited company. If you’re part of a larger organisation, leasing through your business will generally be a better option for both you and the organisation overall.
Benefit in Kind (BiK) for company cars
Benefit in Kind (BiK) is a crucial consideration for company car users, as it affects the total cost you need to pay on company-provided vehicles.
To incentivise more business drivers to go green, the government has made changes to
Benefit in Kind (BiK) tax rates. BiK rates differ, depending on the specification of your chosen car. There are now considerable savings to be made by electric vehicle drivers.
Your monthly lease costs can also be offset against your taxable profits. The amount that can be included depends on how much CO2 your car produces. For example: The full net monthly lease cost can be offset for a car that emits CO2 emissions of 110g/km or less, 85% of the net monthly lease cost can be offset if a car's CO2 emissions exceed 110g/km.
Find out how much company car tax you will pay in this useful guide.
How we can help
When you're choosing a car for business use, it's important to select the right model to fit your needs, budget, and expectations.
At LeaseCar we're not just experts in the business leasing market, we're also car enthusiasts with a comprehensive and up-to-date knowledge of the market. If you need our advice, we're happy to make recommendations for your business based on your individual circumstances.
