Leasing vehicles for business use is growing in popularity – and for good reason. Instead of tying up cash in buying a new car or van outright, more business owners are turning to Business Contract Hire agreements. It’s a hassle-free, budget-friendly way to get behind the wheel of a brand-new vehicle without the long-term commitment of ownership.
Whether you run a large fleet, own a limited company, or are a sole trader, BCH could be the perfect solution for your transport needs. Plus, with perks like VAT reclaim options and fixed monthly costs, it’s no surprise why so many businesses are making the switch.
How does Business Contract Hire work?
Van Contract Hire – also referred to as Business Contract Hire (BCH) – provides businesses with a straightforward and predictable way to acquire new commercial vehicles and company cars. Under this type of leasing contract, businesses can lease a van (or a car) for a predetermined period, typically ranging between two to five years. Essentially, you can think of it as a long term hire. You pay an initial rental (commonly known as deposit), followed by fixed monthly rentals for the duration of the agreement. At the end of the contract, simply hand the vehicle back to the funder with nothing left to pay (considering there is no excess mileage charges or damage to the vehicle). You can then choose a newer model, or walk away.
An important aspect of the contract is setting your annual mileage allowance. This predetermined limit specifies the maximum number of miles the vehicle can be driven each year throughout the lease term. Careful consideration of your business’s expected usage helps ensure this mileage cap aligns with your operational needs.
Benefits of Business Contract Hire for business customers
Contract Hire offers numerous advantages, that make it an attractive option for many businesses. The combination of financial benefits, operational flexibility, and reduced administrative burden makes business contract hire a compelling solution for many businesses and organisations looking to optimise their vehicle operations.
✅ Low initial costs
Unlike traditional financing options, Business Contract Hire typically only requires three monthly payments upfront, making it easier to get started without large capital outlay.
✅ Predictable budgeting
Fixed monthly payments for the duration of your contract length, covering vehicle use for an agreed mileage limit and term length that matches your needs, allow you to better plan for business expenses. Road tax is also included for the whole duration of the agreement.
✅ Stress-free vehicle management
Opt for comprehensive maintenance packages (for a small additional fee) that handle everything from routine servicing and MOTs to tyre replacements and repairs, eliminating the headaches of ownership.
✅ Improved cash flow
Free up working capital by avoiding large purchases of depreciating assets. Since leased vehicles don’t appear on your balance sheet, you can improve key financial ratios while investing in core business areas.
✅ Operational flexibility
With contract terms ranging from 24 to 60 months, you can easily adapt your fleet size to changing business needs and market conditions.
✅ Tax efficiency
Depending on your tax status and the level of business use, you are able to claim back up to 100 % VAT paid on monthly lease payments (including maintenance packages). Moreover, you can also offset rental charges against taxable profits.
✅ Access to modern technology
Maintain an up-to-date fleet with the latest fuel-efficient technologies, low-emission and electric vehicles and advanced safety features
This helps meet Corporate Social Responsibility goals while potentially reducing running costs.
✅ No depreciation worries
Since you only pay for the use of the vehicle and then return it to the finance company, you don’t need to worry about the value it lost over the years – leasing company takes the hit, not you.
✅ No hassle with selling of the vehicle
When it’s time to upgrade, skip the hassle of private sales altogether. At the end of your contract, the finance company collects the vehicle and handle all resale proceedings through professional auctions – no advertising costs, no time-consuming viewings, and no negotiation headaches.
Does BCH work for all business customers?
Van leasing through Contract Hire is suitable for sole traders, partnerships, limited companies of all sizes, charities and other non-profits. If you want a new, reliable commercial vehicle without the financial burden of ownership, this could be the ideal choice.
A few things to keep in mind when you choose Contract Hire for your business lease:
White Business Contract Hire allows you to drive a brand-new car or van at lower cost than other types of finance, it’s not suitable for everyone. Consider:
- If you want to own the vehicle at the end of the lease, BCH is not for you – you must return the vehicle and there is no option to purchase it.
- You have to estimate your annual mileage – excess mileage charges apply if the contracted mileage is exceeded.
- Fully comprehensive insurance is required – this needs to be in place prior to vehicle delivery.
- You’re locked into the contract – it is possible to terminate BCH agreements early but early termination fees apply and they can be high.
- You will be charged for the damages to the vehicle – The vehicle must be returned to the finance provider in a condition that complies with the British Vehicle Rental and Leasing Association (BVRLA) Fair Wear and Tear Guidelines. Failure to meet these standards may result in additional charges.
Is business car leasing available through Contract Hire?
Business Contract Hire is not only available for vans – you can also lease a car. However, if the company car is used for both business and personal purpose, you’ll pay company car tax (BiK) – but there’s good news! The government is encouraging greener choices, so electric and low-emission cars come with big tax savings.
With Car Contract Hire, If your business is VAT-registered, you’ll be able to reclaim up to 50 % VAT paid on a company car lease, unless the vehicle is solely for business purposes (such as pool car) – in that case you could reclaim even 100% VAT.
Business Contract Hire: FAQs
What is the difference between Business Contract Hire and Personal Contract Hire?
The main difference between Business Contract Hire (BCH) and Personal Contract Hire (PCH) is who uses the vehicle and how VAT is treated. The BCH is available for businesses leasing company cars and commercial vans, while PCH is for individuals – mainly those looking to lease cars. Both work similarly – you pay fixed monthly fees to use a new vehicle for the contract duration without owning it, and at the end of contract, you simply hand the vehicle back.
With Personal Contract Hire, VAT is included in the monthly payments and can’t be reclaimed, whereas businesses using Business Contract Hire may reclaim 50-100% of VAT depending on whether the vehicle is solely for business use or the combination of personal and business use. BCH also offers tax benefits like offsetting costs against profits, while PCH has no tax advantages. Essentially they follow the same leasing model, just with different financial rules for businesses versus private users.
How much is the early termination fee on a Business Contract Hire agreement?
Ending your agreement early will incur a termination fee, typically around 50% of your remaining rental payments. You will have to ask your funder for the early termination quote (your Account Manager can assist you with that), and, once agreed on the early termination fee, the vehicle should be returned within the specified timeframe otherwise charges might apply.
Please note that you’ll still be responsible for the full month’s rental payment even if the vehicle is returned partway through the month.
Early termination fee must be paid in full – it is not possible to spread the cost over a period of time.
What is the minimum deposit on a Business Contract Hire (BCH) agreement?
The initial rental for a Business Contract Hire lease is typically equivalent to 3 to 12 monthly payments.
Example:
- Monthly payment: £200
- Agreed initial rental: 6 months’ worth
- Total deposit due: 6 x £200 = £1,200
This amount is payable when your contract starts – i.e., when you take delivery of the vehicle.
Good to know:
Your deposit acts as your first payment, so you won’t pay both the deposit and a monthly rental in month 1.
In this example:
- Month 1: £1,200 (deposit)
- Month 2 onwards: £200 per month
Is it possible to extend the BCH agreement?
Many finance providers are open to extending Business Contract Hire agreements, typically for periods of up to 12 months. While the monthly rental payments often remain at the same level during the extension, some providers may apply a modest increase to reflect further depreciation.
What is included in the maintenance package?
Maintenance packages cover the cost of vehicle services, MOTs, repairs, and tyre replacements. Visit our Vehicle Maintenance page to find out more.
