Business Contract Hire | Pro’s and Con’s

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Business Contract Hire | Pro’s and Con’s

Choosing cars and financing fro your business cars can be confusing, but a great way of utilising cars for your company is by using a Business Contract Hire. Its not the best for everyone, so we’d recommend you speak to your accountant, but we’ll go over the pro’s and con’s.

BCH Explained

Business Contract Hire is a form of car finance where the ownership of the cr remains with the leasing company or funder. It tends to be a long-term hire option, traditionally over 2 to 3 years.

It is one of the most easiest ways to obtain a vehicle as a small to medium sized business, however, you will still need to meet the credit criteria of the finance company.

How does Business Car Leasing Work?

One of the main advantages of a Business Contract Hire is that there is no need to use capital or stretch your existing credit lines to obtain a vehicle. In return for paying a monthly rental, the finance company provides you with use of a vehicle for a 2-3 year term.

The vehicle does not sit as an asset on your company books and you will not have to worry about taxing the vehicle or the warranty. For true fixed cost motoring, you can add a maintenance option to cover routine services.

Ownership vs. Business Contract Hire

If you were to own a vehicle as a business, then the asset sits on your company accounts. If financed, this will show as a liability. It can get qute complicated.

You can claim depriciation on a vehicle ownership, this is determined by your accountant, which in turn means your company will lost an amount of equity on a monthly basis.

On top of the above, you also have the headache of the vehicle admin side. From taxing your vehicle, to the required paperwork.

Tax Advantages of Business Contract Hire

With a Business Car Lease, you can claim 50% of the VAT back on the rentals and up to 100% on the maintenance element.

If your after a Commercial Vehicle Contract Hire, you can claim back 100% of the rental element.

Con’s against Business Contract Hire

Business Contract Hire is not for everyone, with leasing there are a few disadvantages to consider, these include:

Excess Mileage

If you take out a contract with 10k per annum, to cut the costs, but your end user is doing 20k, you could be hit with a significant bill.

Excess mileage charges for long-term lease deals can be from 10p per mile and can go up to over £1.

Short-term car lease excess mileage charges can range from around 45ppm up to £5 per mile, depending on the vehicle.

There is no set industry rate for excess mileage.

Fair, Wear and Tear

Keeping you car free from damage can be difficult over a 2 or 3 year term, and no leasing company expects you to return the car in showroom condition at the end of the contract.

But there is a tolerence level of damage on business car lease vehicles, and this is normally based on the BVRLA Fair, Wear and Tear guide.

It is really important to look after your vehicle and should the vehicle require a repar, don’t use a back street garage or a cash in hand smart repairer, or you may pay twice.

On short-term vehicles, they do not have to follow the BVRLA’s guide so it is important to request return conditions of the contract before taking out a vehicle.

Servicing and Maintenance

Most business car leases do not come with maintenance as standard. You can add this for a monthly cost, but sometimes it can work out cheaper to cover routine services yourself, through your company.

Always use a franchsed and authorised dealer to carry out any servicing work to your vehicle, or you may invalidate your contract.

Building Your Fleet

If you need to expand your fleet, a business contract hire is a great way of expanding vehicles without laying out lots of capital. Credit lines can be granted by the finance companies.

If you need a flexible fleet, then consider the option of short-term car leases, these allow you to take vehicles without fixing into a 2-3 year contract. They are ideal for new start employees on probation period or where cars are required for short-term projects.

Credit Lease Criteria for Businesses

In order to order a business contract hire, a credit line is required. This will require your company and connected Director’s to go through a credit check.

Most finance companies will want at least 2 years worth of positive accounts, if not personal guarantees or Directors guarantees may be required.

Even with poor credit as a company, you still have options. We work with a range of brokers and vehicle providers who provide business contract hire to new start businesses or those with complexities.

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