Business Contract Hire (BCH)

What is BCH?

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.

How does it work?

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.

What are the advantages?

• Choice of initial rental profiles. 
• Cars are often new and covered by a manufacturer’s warranty. But be sure to check the terms, as depending on the age of the vehicle it may expire before the end of your contract. 
• At the end of the agreement, subject to meeting your contract’s terms and conditions, you hand the car back.
• If you’re a VAT registered business and you take out a BCH, you may be able to claim back up to 50% of the VAT paid on your monthly rentals. 
• You can extend the agreement if this option is available.

What you need to be aware of?

• You’ll have no option to own the car. 
• If you go over your agreed mileage you’ll be charged a set pence per mile for the excess. 
• You are liable for any damage to the car. 
• You can’t sell or modify the car. 
• If you settle the agreement early you will be charged early settlement penalties. 
• If you fail to make your repayments, the finance company can repossess the car.

Ending the agreement:

• You may be able to extend the lease, or hand the car back. 
• You can end the agreement early at any time, but you will be charged penalties for doing so.