Business Contract Hire

What is Business Contract Hire ?

Typically abbreviated to BCH, this is a long term rental agreement of between 12 and 60 months.

You as the Contract Hire Company can efficiently recover the VAT from the initial purchase, so reducing your monthly rentals (which are subject to VAT). This makes Contract Hire a favored option for VAT-registered businesses, enabling them to reclaim 50% of the VAT on the finance component for cars, and typically 100% for commercial vehicles (provided there's no private use, no exempt turnover, and no participation in the Flat Rate VAT Scheme).

In agreements involving maintenance, the VAT on the service portion is fully reclaimable.

Notably, BCH alleviates concerns about disposal, as the leasing company safeguards the future value. Another notable advantage is that Contract Hire is typically considered 'off balance sheet funding' (pending legislative changes), potentially enhancing your gearing ratio (assets to borrowing ratio) and, consequently, your borrowing capacity in the future. This makes Contract Hire a strategic financial choice, combining tax efficiency, maintenance benefits, and improved financial positioning for businesses.

Advantages

• Minimum capital expenditure
• Accurate monthly budgeting
• Improved cash flow
• Fixed interest rates
• Rentals can be offset against the businesses profits. Cars with a CO2 output above 130g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the businesses taxation, for contract-hired cars with a CO2 output of 130g/km or below, there is currently no disallowance.
• Reduced administration
• On-going advice and support
• Road Fund Licence provided (vehicle excise duty paid) for duration of contract
• Optional maintenance package
• Optional breakdown rescue cover
• Optional replacement vehicle cover in event of breakdown
• Optional GAP insurance which provides cover for the shortfall between the outstanding finance and the insurance value if the vehicle is declared a write-off by your insurance company

Disadvantages

• Early termination can be expensive
• If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
• You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that 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