Business contract hire (BCH or business car leasing) is a useful way for your business to get access to a car without the hassle of having to legally own it.
To put it at its simplest, this type of car finance lets you lease a car for a business for a number of months, eventually returning it to the finance company.
So what is BCH and how does it work? Here’s our simple (we hope) explanation of business contract hire and everything you’ve ever wondered about it.
What is Business Contract Hire?
Business contract hire (also called BCH) is essentially the business-friendly version of personal contract hire (PCH) . The key difference is that you’re leasing the car for your business, and for business purposes, rather than for your own, personal use.
You’ll pay fixed monthly instalments with interest and VAT, for a specified period of time, usually around two to five years. When you come to the end of the agreement, you’ll give the car back to the company.
BCH deals are useful for many companies because they can reduce the financial risk that comes with owning a car. They also let you benefit from access to the latest, high spec models at the start of their lifespan – no ropey hand-me-downs here.
Cars have an unfortunate habit of losing value — faster than England or Scotland losing in the World Cup! In the first year of actually being used, your car can lose nearly half of its overall value, for instance. If you want to sell the car in the future, this depreciation can be pretty disastrous. Leasing a car, on the other hand takes this risk out of your hands. As the registered keeper of the car, and not the owner, you’ll only have to worry about keeping it a good condition and under your mileage restriction.
There are obviously limits to who can take out a business contract hire agreement – it’s not like finance companies hand out cars like sweets, after all. You’ll need to be running a business of some kind and registered as either a limited or public limited company to benefit from this type of car finance. When you’re applying for BCH, you have to be able to provide proof of that too, so expect to be asked to dig out bank statements or accounts, proof of address, and ID for the main director.
Maintenance packages can also be added to your contract which can cover the cost of servicing, breakdown cover and MOT.
Claiming back the cost of BCH with tax
There are a fair few things that you can claim back with a business contract hire lease in terms of tax.
You should be able to claim the cost of your monthly instalments as a business expense, as well as fuel, but the full amount you can claim will depend on its emissions and how much CO2 your car emits.
If your car has emissions higher than 130g/km, you’ll only be able to claim around 80% of the total back. If emissions are under this figure though, you’ll be able to claim back the full amount.
Similarly, if you use the car solely for business, you should be able to claim back 100% of VAT. If you use it in a personal capacity – even for just the odd trip or errand – expect to only be able to claim 50% of the VAT back though.
It’s also worth bearing in mind that you’ll also be able to claim 100% of VAT back for any maintenance package that you add to your lease too.
How to get a Business Contract Hire car
Well, first of all, you’ll have to prove that you’re a business owner by proving you are who you say you are.
You’ll usually have to provide a small deposit (technically an initial payment) for the car first of all. Then you’ll agree monthly instalments for a period of time, usually around two to five years. This will be set at an agreed rate, so there isn’t the worry of having wildly fluctuating bills every month.
Obviously, your business will need to have a good credit record to benefit from a business contract hire contract.
You’ll need to make sure that you keep up to date on monthly payments or else you risk having the car repossessed too – and that can affect your credit rating.
Advantages of Business Contract Hire
Here are some of the reasons why a lot of people find that business contract hire is pretty useful for their business:
- Your business doesn’t have the long-term responsible of owning a car
- You’ll be able to get access to the latest models of cars for quite a small monthly cost
- The monthly instalments provides a fixed cost for your vehicle each month
- The fixed monthly instalments can free up cash flow for your business
Disadvantages of Business Contract Hire
- Your business will never actually own the car, so you won’t be able to sell it
- Cancelling your contract early can often result in a large fee
- You’ll have to pay a fee if you drive over the specific mileage allowance agreed at the start of your contract
- You need to return the car in the condition that you agreed to at the start of the agreement