Is business contract hire the same as leasing?

Business contract hire is a type of business vehicle leasing in which the funder owns the vehicle, you pay a fixed monthly rental and you hand the vehicle back at the end. It differs from a finance lease or hire purchase, where the business takes on the vehicle’s end value or ends up owning it. With a finance lease, the business is responsible for the vehicle’s value at the end and usually sells it, keeping most of the proceeds or covering any shortfall. Hire purchase ends with the business owning the vehicle. Our fleet finance page compares the options, and our guide to business contract hire explained goes through a contract step by step. If you aren’t sure which agreement suits your fleet, Toomey Leasing Group can quote on more than one so you can compare. Speak to our team.

Can a business reclaim VAT on business contract hire?

A VAT-registered business can normally reclaim 50% of the VAT on business contract hire rentals for cars, and all of the VAT on vans used for business. If maintenance is supplied and shown separately on the invoice, the VAT on that element isn’t caught by the 50% restriction and can normally be reclaimed in full. HMRC sets out the rules in VAT Notice 700/64. The 50% block applies to leased cars, with exceptions for cars leased mainly for taxi use or driving instruction. Vehicles outside HMRC’s definition of a car, such as most vans, follow the normal VAT rules. Early termination charges on a car lease are subject to the same 50% block. We show the rental and maintenance elements separately on every quote, so your accountant can see what is reclaimable. Request a business contract hire quote.

What happens if we go over the agreed mileage on a BCH contract?

Going over the agreed mileage on a business contract hire vehicle means paying an excess mileage charge, a pence-per-mile rate set in the contract at the start. If a driver’s mileage changes during the contract, the agreement can often be re-quoted to a new mileage, which usually costs less than paying excess charges at the end. Setting realistic mileage at the start matters, because mileage also affects the monthly rental and the vehicle’s predicted value. Our mileage capture service records business and private mileage, so you can see when a vehicle is heading over its limit. Your account manager reviews mileage during the contract, not just at the end. Ask us about mileage reviews.

Can we end a business contract hire agreement early?

A business contract hire agreement can usually be ended early, but an early termination charge applies, normally a proportion of the rentals still to be paid. The exact charge depends on the funder and how far into the contract you are, so agreeing a realistic term at the start is the best way to avoid it. Under HMRC VAT rules, early termination charges on car leases fall under the same 50% VAT restriction as the rentals. If you only need a vehicle for a short period, such as a project or a temporary member of staff, short-term daily rental avoids a long contract. Our article on the hidden costs of vehicle leasing covers early termination in more detail. If a vehicle is no longer needed, talk to us before ending the contract, as it may be possible to move it to another driver. Contact your account manager.

What is Business Contract Hire

Exploring Business Contract Hire

Business Contract Hire (BCH) can be a vital tool for businesses when looking to finance their fleet of vehicles. Business leasing is utilised by many businesses to help streamline their business operations whilst obtaining optimal financial efficiency.

What exactly is Business Contract Hire?

Simply, Business Contract Hire is a flexible, long-term rental agreement for businesses who want to lease a vehicle without having to worry about the risk of deprecation that comes with ownership

With a Business Contract Hire agreement, the leasing company assumes all of the responsibilities of owning the vehicle including road tax and insurance. Maintenance and repair can also be included for a small monthly fee. For businesses, this means they can focus on what really matters – their business operations

What are the financial benefits of Business Contract Hire?

As mentioned previously, BCH can offer attractive financial incentives for businesses. Firstly, one of the strong benefits of the finance type is that there are no large up-front costs. Instead, you pay a fixed monthly fee for the duration of the contract. This fee is based on factors such as the type of vehicle, the contract length and the estimated mileage.

Ultimately, this means, your business can save larger amounts of cash for other areas of the business. Such capital could be used to help drive overall growth.

Secondly, by leasing your vehicles through BCH, you can avoid some of the risks associated with traditional vehicle ownership. As most vehicles are depreciating assets and subsequently lose value over time, your initial investment in the vehicle could be at risk. Even more so if the vehicle is subject to high mileage. With Business Contract Hire, the leasing company would take the ‘end-of-life’ or disposal costs on board.

How flexible is Business Contract Hire?

BCH can provide a much more flexible solution for business owners and constitutes a great advantage for the finance type. As your business grows and adapts to the market, your vehicles need to change too. This is one of the reasons why Business Contract Hire is so popular, contract lengths vary for 2-5 years and your annual mileage can be adapted according to the operational needs of your business.

Beyond this, Business Contract Hire can be used to finance many different vehicles. Including cars, vans and trucks, so you can find the perfect vehicle to meet the needs of your business. Not only is business contract hire cost-effective and flexible it is also a convenient and efficient solution for businesses.

How can Business Contract Hire achieve operational efficiency

To complement the operational goals of your company, we offer maintenance-inclusive BCH contracts. This means all of your maintenance needs for your fleet can be looked after by our team. Resulting in your operations department having more time to focus on other areas of the business, instead of worrying about the maintenance and scheduling of services.

Another great advantage of BCH is the ability to budget accurately. With a fixed monthly fee, you can easily predict and plan your expenses, giving you greater financial stability and control. Additionally, you won’t have to worry about unexpected expenses such as repairs or maintenance costs, as these could be taken care of by the leasing company.

At Toomey Leasing Group we offer a range of complimentary services which can be added on. Including Mileage Capture, Whole Life Cost Analysis and Fleet Driver Support. All of these services have been designed to make fleet car leasing easier and more efficient. We can help to recommend which combination of services your business may benefit from, allowing you to drive down costs and develop business growth.

grey vans lined up in a row

Business contract hire FAQs

: Business contract hire is a type of business vehicle leasing in which the funder owns the vehicle, you pay a fixed monthly rental and you hand the vehicle back at the end. It differs from a finance lease or hire purchase, where the business takes on the vehicle’s end value or ends up owning it.

With a finance lease, the business is responsible for the vehicle’s value at the end and usually sells it, keeping most of the proceeds or covering any shortfall. Hire purchase ends with the business owning the vehicle. Our fleet finance page compares the options, and our guide to business contract hire explained goes through a contract step by step.

If you aren’t sure which agreement suits your fleet, Toomey Leasing Group can quote on more than one so you can compare. Speak to our team.
: A VAT-registered business can normally reclaim 50% of the VAT on business contract hire rentals for cars, and all of the VAT on vans used for business. If maintenance is supplied and shown separately on the invoice, the VAT on that element isn’t caught by the 50% restriction and can normally be reclaimed in full.

HMRC sets out the rules in VAT Notice 700/64. The 50% block applies to leased cars, with exceptions for cars leased mainly for taxi use or driving instruction. Vehicles outside HMRC’s definition of a car, such as most vans, follow the normal VAT rules. Early termination charges on a car lease are subject to the same 50% block.

We show the rental and maintenance elements separately on every quote, so your accountant can see what is reclaimable. Request a business contract hire quote.
: Going over the agreed mileage on a business contract hire vehicle means paying an excess mileage charge, a pence-per-mile rate set in the contract at the start. If a driver’s mileage changes during the contract, the agreement can often be re-quoted to a new mileage, which usually costs less than paying excess charges at the end.

Setting realistic mileage at the start matters, because mileage also affects the monthly rental and the vehicle’s predicted value. Our mileage capture service records business and private mileage, so you can see when a vehicle is heading over its limit.

Your account manager reviews mileage during the contract, not just at the end. Ask us about mileage reviews.
: A business contract hire agreement can usually be ended early, but an early termination charge applies, normally a proportion of the rentals still to be paid. The exact charge depends on the funder and how far into the contract you are, so agreeing a realistic term at the start is the best way to avoid it.

Under HMRC VAT rules, early termination charges on car leases fall under the same 50% VAT restriction as the rentals. If you only need a vehicle for a short period, such as a project or a temporary member of staff, short-term daily rental avoids a long contract. Our article on the hidden costs of vehicle leasing covers early termination in more detail.

If a vehicle is no longer needed, talk to us before ending the contract, as it may be possible to move it to another driver. Contact your account manager.