Business Contract Hire (BCH) (known as a Business Lease) is where you lease the car for a set period of time. You pay fixed monthly rentals for a set period of time, and then hand it back to the leasing company at the end of your agreement. All rentals will attract VAT at the current rate.
Business Contract Hire (BCH) (known as a Business Lease) is where a business leases the vehicle car for a set period of time. You pay fixed monthly rentals for a set period of time, and then hand it back to the leasing company at the end of your agreement.
The Contract Hire Company reclaims the VAT on the original purchase, which reduces your monthly rentals (which are + VAT). Contract Hire is a very popular choice for VAT registered companies as they can claim back 50% of the VAT on the finance element for cars and generally 100% for commercials (subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme).
On contracts with maintenance the VAT on the service element is 100% recoverable.
One of the major benefits is that there are no disposal worries as the future value is underwritten by the leasing company. Another benefit of Contract Hire is that it is generally 'off balance sheet funding' (subject to legislation change) which means it can improve your gearing ratio (assets to borrowing ratio) and therefore possibly your borrowing ability in the future.
You’ll need to select how long you would like your agreement to run for. Then, at the beginning of the agreement you’ll pay an initial rental, which is usually 3 or 6 months’ of your monthly rentals made in advance. You then pay the leasing company fixed monthly rentals (including VAT) over the length of the agreement. The monthly rentals will be calculated based on your initial rental and agreed annual mileage. The leasing company continues to own the car, and at the end of the agreement you hand it back. A maintenance plan can also be added at an additional cost.
|Initial payment:||An initial rental; usually 3 or 6 months’ of your monthly rentals.|
|Fees:||You may be charged arrangement and additional fees by the leasing company.|
|Restrictions:||You’ll need to hand the car back in good condition. If anything beyond normal wear and tear needs fixing, you’ll have to pay for it.
If you go over your agreed mileage you’ll be charged a set pence per mile for the excess.