Business car leasing, otherwise known as business contract hire or BCH, is available to sole traders, partnerships and limited companies.
It’s where a business pays set monthly payments over an agreed period in return for an individual vehicle or fleet. The business should always consult their accountant before making a decision to lease/contract hire a vehicle.
Leasing a vehicle means that the vehicle in question is "off balance sheet" and is not considered to be an asset to the business. Rentals are shown in the P&L, which is how VAT can be reclaimed in the quarterly VAT return. Rentals are of course charged exclusive of VAT for this reason.
The business never owns the vehicle, it’s essentially a long-term rental or lease for a fixed, pre-agreed period.
Then, when the agreement ends, you simply hand the vehicle back to your leasing provider and walk away, leaving them to worry about its disposal.
A business contract hire’s payments are usually fixed for the entirety of the contract, meaning you always know how much it’s going to cost each month and you can budget accordingly.
The monthly payments are calculated using several criteria:
- The price of the vehicle at the start of the agreement
- Any deposit you wish to make
- How long the agreement is set to last
- How many miles per year you’re expecting to cover
All of this information, along with industry knowledge, helps calculate how much the vehicle is expected to be worth when the agreement finishes.
And your monthly payments make up the gap between how much the vehicle is worth at the start of the business contract hire agreement, and how much it’s expected to be worth at the end - otherwise known as its depreciation.
When your business contract hire agreement ends, as long as you’ve kept the vehicle’s mileage below your contracted amount, and any damage sits inside the fair wear and tear guidelines, you’ll have nothing more to pay and you’re free to start a new contract if you wish.
A business contract hire agreement is great if you’re a sole trader, partnership or limited company that doesn’t want to commit to owning a vehicle or fleet outright.
With a business contract hire, you can change your vehicle or vehicles more frequently, meaning you or your employees drive the latest in style, economy and safety.
Maintenance packages are afforded the same tax breaks, and you can usually claim any excess mileage charges as expenses.