Contract Hire For Business - Our Guide

By A Yorkshire Bloke

The rise in company car tax over the years has seen a slight decrease in contract hire for business over the years. But with new tax incentives business contract hire has made a ferocious comeback – especially with those looking for fully electric vehicles.

We’re able to provide business contract hire agreements for all your favourite makes and models. We can provide any make or model of vehicle, for which we generally have a good selection of special offer business contract hire deals.

What is business contract hire?

Business contract hire, otherwise known as BCH (sometimes referred to as a business lease) is a financial agreement that allows you to essentially rent a car or van for an agreed period of time (usually 2-5 years). During this time, you’ll be allowed to drive an agreed number of miles per annum.

What type of business can use a BCH agreement?

Business contract hire is available for any UK soletrader, partnership or limited company. All agreements are subject to credit acceptance – if you think you might struggle to be accepted for credit, contact us anyway. We have helped a number of new start businesses to finance their fleets.

What are the benefits of business contract hire?

Contract hire has a brilliant set of benefits that both employers and employees can take advantage of.

Minimise your financial risk

Purchasing vehicles can carry a great risk to a business. Especially in times of economic uncertainty and fundamental shifts in industry – like we’re seeing now with the move to EV’s, the residual value of vehicles can be unstable. With contract hire agreements, changes in residual values don’t affect your monthly rental cost, this is locked in place when your contract is signed.

Change your vehicle regularly

There are a number of benefits to being able to change your vehicle regularly. For business vehicles where employees are visiting clients; this helps present a professional brand image. It also reduces the risk of breakdown and you’re generally always keeps you within the vehicles warranty period; this reduces unexpected breakdowns.

Minimise your administration

With contract hire, we’ll do all the work. All the delivery is arranged by us and when your vehicle is due to be returned we’ll be in touch with ample time. Whether you want a new vehicle or decide you want to go somewhere else; we’ll make sure you’re new vehicle is arranged before you hand your old one back. Running your own fleet requires specialist knowledge and proper management to ensure your vehicles are always on the road, you chose the right vehicles for your business and you get the right prices. With our fleet management services, you get all the benefits of having a fleet manager but without the added costs.

Improve your cashflow

When you purchase a vehicle outright you generally have to fork out a significant amount of money. Even with a contract purchase agreement there’s normally a significant ‘balloon’ payment at the end of the agreement. When you lease a vehicle, you’re only paying for the depreciation of the vehicle.

VAT and other taxation incentives

If your company cars are pool cars i.e. used only for business usage, you’re able to reclaim 100% of VAT on your finance rentals (providing you’re a VAT registered company). For vehicles that are used for personal usage as well as business, you can reclaim up to 50% of the VAT. As will be explained further below, electric and hybrid vehicles yield further tax efficiencies with regards to company car tax and subsequent Class 1A national insurance tax.


Maintenance agreements can be included

When you run a fleet for your business – or even one or two vehicles for that matter, it’s imperative to keep these vehicles on the road. If the vehicles stop running, your business might to, depending on your industry. If having staff on the road is critical, then we’d definitely recommend a maintenance contract. Our optional maintenance agreements are available with all BCH vehicles and cover full servicing, MOT and tyres.

Known monthly cost

Having a known monthly cost for your vehicle (this is especially so if you have a maintenance agreement) is a real dream for businesses. When your vehicle costs are known, you can budget effectively for other things. Contract hire for business is a real dream for your accounts department. No messy payments just a simple monthly rental.

Access to special offers

Business leases are an extremely popular agreement. This gives your business access to a wide array of special offers. From cars to vans, from Fords to Fiats, there will likely always be a deal around that suits your needs.

Quick turnaround and delivery

Generally, we have a large selection of stock business contract hire deals available for you to choose from. For businesses, this is very beneficial. Sometimes contracts come around sooner than expected requiring new staff and vehicles. We can often deliver vehicles in a matter of days.

Business Contract Hire

Are there any risks involved with business contract hire?

Like all financial agreements, there are certainly risks involved that you need to be aware of in order to make an educated decision on your vehicles.

You must keep up with regular payments – The golden rule

If you have any doubts on your ability to be able to make payments, you should steer well clear of vehicle finance in general. Failing to make payments on financial agreements can seriously affect your credit rating and be detrimental to your business. Our credit checks help determine affordability, but these can’t always see everything. Be honest with yourself, if you think you’ll struggle to make payments, choose a more affordable vehicle or a different option altogether. If you’re looking for advice, please enquire – we have over 20 years’ experience in this industry.

Excess mileage charges will apply

The more you drive, the more the value of your vehicle decreases in value, that’s why you’re given an annual mileage allowance. It’s important you give us an accurate figure for this so you don’t have a heavy excess mileage charge. These can quickly get out of hand, if you think you’re going to go over your mileage please contact us as soon as possible. We’re generally able to readjust these but naturally this will result in an increased rental cost – this will be cheaper than paying the excess charges however.

Damage charges will apply

Damage charges should not put you off if you’re a responsible driver. Fair wear and tear is expected (what is considered fair wear and tear is outlined by the British Vehicle Rental and Leasing Association) and you will not be charged for this. Also, any repairs will be charged at a responsible rate. However, the vehicle will be repaired to a good standard, considerable damage to the vehicle can become expensive to repair. If you’re a heavy user, for example if you’re a builder who likes to throw bricks in the back of his van and maybe do a spot of drifting at the weekend – we’d recommend a finance lease agreement. Get in touch for more information.

Early termination fees will apply

Business lease agreements are expected to run their full term. If you expect you’re going to need to exit and agreement you should expect significant charges. These are generally equivalent to around half the outstanding rentals. It’s very important that you consider this carefully before entering into the agreement.

EV for Business

What’s the big deal about electric car business leasing?

Acquiring an electric vehicle through a BCH agreement is exceptionally tax efficient. Benefit-in-kind (BIK) tax rates are calculated based on a vehicle’s emissions as determined by Worldwide Harmonised Light Vehicles Test Procedure (WLTP). Essentially, the less emissions a vehicle emits, the less you pay in company car tax. This makes a fully election vehicle the car of choice. Where an electric vehicle doesn’t work for you; for example, those that do a significant amount of motorway driving. A hybrid will certainly still save you a significant chunk of money.

Whilst the tax advantages are significant for employees – there’s also savings to be had for employers. By switching to an electric or hybrid fleet you’ll save money on your Class 1A National insurance tax – this is a fixed rate equal to a percentage of your employee’s BIK tax rate.

When isn’t business contract hire the right option?

Business contract hire has some great qualities, but sometimes, it’s just not for everyone. So, when wouldn’t you want to get a BCH agreement?

When you want to own the vehicle

Ultimately, if you want to own the vehicle at the end, contract hire is probably not the right agreement for you. That’s okay, we also do contract purchase agreements which are set up fairly similarly – please contact us for details.

When your vehicle may be susceptible to damage

We often see this with our van customers who’s job means their vehicles are susceptible to damage. We have another agreement – finance lease that we would recommend for customers where their vehicle is likely to be damaged. This will help you avoid expensive reconditioning charges.

Signing Document

When you don’t know exactly how long you require the vehicle for

Our contract hire agreements are available for 2-5 years. If you’re unable to commit to a vehicle for this kind of term or just simply don’t know how long you need a vehicle for. It may be best to reconsider contract hire as early termination fees can be expensive. We have other agreements that may suit your needs – please contact us.

When personal contract hire is a better option

Sometimes personal agreements may be determined to be more cost effective or just simply more suitable/ For example if you are considering leaving a company and need a car for your own needs, or you are driving an expensive, fuel inefficient vehicle which is more tax efficient on a personal agreement. Luckily for you we do both business and personal agreements.

Final thoughts on business contract hire

Business contract hire can be a brilliant agreement for businesses who want to improve their cashflow and minimise risk. For company car drivers, if you can, making the switch to electric has an unparalleled advantage when it comes to tax efficiency. If you’re looking for a business lease agreement on a car or van – we’re the experts. Call our team today or submit an enquiry on our website.