Business contract hire explained

30/08/2021 | Steve Lumley

Business contract hire explained

Put simply, business contract hire (BCH) is an effective way for a business to get a brand-new car without the hassle of owning it.

Also, business contract hire is also referred to as business car leasing or BCH - but the terms all mean the same thing.

Business car leasing is a type of finance that enables a business to lease a vehicle for an agreed period of time.

And if your business is VAT registered, then there are some tax advantages for leasing a car.

When the lease agreement ends, the business simply hands the vehicle back to the car leasing company and decides whether they want to lease a new car.

However, the business will need to look after the car because any damage that needs to be repaired will lead to a bill under the car leasing firm’s fair wear and tear guidelines.

Also, be aware that you will need to agree to an annual mileage limit and if you exceed this over the term of the agreement, then you will be handed an excess mileage charge.

 

What is business contract hire?

Business contract hire runs along the same lines as a personal contract hire (PCH) agreement.

The only differences are that with personal contract hire, the person is leasing a vehicle that's just for their personal use.

With a business car leasing deal, you are leasing a vehicle on behalf of the business.

The business will be able to use that vehicle for the contract’s duration, but they will never own it.

The car will always remain the property of the vehicle leasing company and there's no opportunity of buying it when the agreement ends.

The big attraction for business car leasing is that the firm can reduce the financial risk that will come when owning a vehicle.

Business contract hire also offers firms the chance of accessing high spec models with lots of equipment rather than running an older vehicle.

As with a personal contract, the firm is essentially paying for the car's depreciation which is a hefty amount to stump up when you own the car – especially since some vehicles can lose up to 40% of their value in the first three years alone.

 

How to get a business car lease

A business will need to meet a range of criteria for a business car lease before they are able to get a brand-new car, including:

  • Your business will need to be registered as a sole trader, limited company or partnership - check the leasing companies guidelines criteria
  • You will need to prove that your company is running so you'll need to hand over proof of address and bank statements - some firms will need to see at least two years of accounts
  • You'll also need to provide the main director’s proof of identity.

There will also be a car lease credit check to ensure that the business can meet the monthly payments.

 

How does business contract hire work?

Business contract hire works along the same lines as personal contract hire. You will need to:

  • Determine how much can afford every month
  • Decide how many months the agreement will run for
  • Calculate what the annual mileage will be
  • Decide how much your initial payment will be.

With Tilsun Leasing, for example, the annual mileage limit starts at 5,000 miles per year and increases up to 30,000 miles which should meet the needs of most businesses.

The contract hire terms run from 24 months, 36 months or four months.

The initial rental payment can be either one month, three months, six months or nine months.

You will need to appreciate that a higher initial rental will lead to a lower monthly payment.

Once you have decided on these issues, you can then begin searching for the make and model of business lease car for meeting your firm’s needs.

 

The benefits of business car leasing

Along with tax advantages for VAT registered companies, a new car will give a good impression of your firm when visiting clients and other businesses.

Other benefits for business contract hire include:

  • You can switch to a new brand-new lease car every two, three or four years
  • Help cash for with fixed monthly payments
  • Know that road tax is included
  • Opt for maintenance included for peace of mind knowing the servicing and maintenance costs are covered
  • You will not own a depreciating asset
  • You will still enjoy the manufacturer’s warranty
  • You can enjoy a better vehicle for less.

Also, your brand-new car will be delivered to a mainland UK address for free.

 

About business contract hire

If you want to know more about business contract hire, and why leasing a car for business makes sound sense, then it's time to speak with the team at Tilsun Leasing on 03330 040 888.

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