Business Contract Hire (BCH) is a simple and cost effective way to fund any number of vehicles for your business.
It is effectively is a long term rental agreement. Contracts can range anything from 18 months to 60 months and can be tailored to suit your businesses requirements. The leasing company reclaims the VAT on the original vehicle purchase price, so you are only charged VAT on the actual rental costs.
Business Contract Hire is a very popular choice for companies that are VAT registered. These companies can claim back 50% of the VAT on the finance element for cars (with some private use) and generally 100% for commercials (subject to no private use and not being on a flat rate VAT scheme). For contracts including optional maintenance, the VAT on the maintenance element is 100% recoverable.
One of the key benefits is no disposal risk, as the future resale value is underwritten by leasing company. Another key benefit of Business Contract Hire is that it is an "off balance sheet" funding method (subject to legislation changes). This can improve your assets to borrowing ratio and therefore possibly help your potential borrowing ability in the future.
Minimum capital outlay
Improved cash flow
Accurate monthly budgetary control
Rentals can be offset against the businesses profits. Cars with a CO2 output above 110 g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the businesses taxation, for cars with a CO2 output of 110 g/km or below, there is currently no disallowance
No vehicle disposal or resale risks
No maintenance risks (if the optional maintenance package is taken)
Road Fund Licence costs (vehicle excise duty) are included for the duration of the contract
Optional maintenance and tyre package, including breakdown and recovery cover
Optional replacement vehicle cover in the event of a major breakdown
Early termination can be expensive, as the agreement is not designed to be ended early
If you cover more miles than is stated in your contract, you will be charged an excess mileage rate for each mile over that shown in your contract
You must look after the vehicle and return it in a well maintained condition, or you will be charged for any damage over and above what is stated in the "Fair Wear and Tear Guide"
You must have fully comprehensive vehicle insurance
You will never own the vehicle as there is no option to buy it