Business vehicle leasing with Carparison

Business Vehicle Leasing Deals

A business vehicle lease is commonly referred to as Business Contract Hire (BCH) and allows businesses a fixed payment method for the use of a car or van for a term of normally between 12-48 months. You'll be required to pay an initial rental and will then make fixed monthly payments thereafter for the duration of that term. At the end of the lease, the vehicle/s will be returned. 

You can lease a vehicle under a Business Contract Hire agreement if your company is either: a Limited Liability Partnership (LLP), a Limited Company, a Partnership or you are a Sole Trader. The business will need to pass a credit check and demonstrate sufficient income or profit. You will therefore be required to submit details of the business and the name and home addresses of the business director/s, owner/s or proprietor/s. Evidence of your company's accounts will then be reviewed to determine affordability: 3 - 6 months' business bank statements is usually sufficient for this purpose. 

The difference between a business lease and a personal one lies only in how the price is advertised: prices for a Business Contract Hire agreement (BCH) will exclude VAT while a Personal Contract Hire agreement (PCH) will include VAT. This is because businesses are able to claim back a proportion of the VAT on the payments of their lease vehicle and this is not the case for personal vehicles.

For business leases used for business use only, 100% of the VAT applicable to the finance payment is reclaimable. This reduces to 50% if the vehicle is used for personal as well as business use. 100% of the VAT for any maintenance payment is also reclaimable. The rental payments are also classed as a true business expense so can be wholly offset against corporation tax. 

Business lease

Business Contract Hire

A business vehicle lease will be one of the easiest and most affordable ways for a business to procure a brand new vehicle. Consequentially benefitting from improved vehicle safety and technology, reliability, brand image and of course overall driving enjoyment. If you and your business are not ready to make the jump to an electric vehicle but are conscious of your carbon footprint, driving a new vehicle will also allow you to contribute positively to this movement due to the increasingly strict emissions regulations governing new vehicle releases. 

Choosing a business lease allows you to contol all aspects of your business's automotive expenses. You benefit from fixed monthly fees without unforeseen or debilitating extra charges. It also frees up business capital for investment elsewhere, and means you avoid the depreciations risks associated with alternative financing methods. However, reasonable care has to be taken of the vehicle and also there is an obligation to remain under the stated mileage at the contract inception or the finance company will levy a charge for loss of value.

 

Advantages:

  • Minimum capital expenditure
  • Accurate monthly budgeting
  • Improved cash flow
  • Fixed interest rates
  • Rentals can be offset against the businesses profits. Cars with a CO2 output above 130g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the businesses taxation, for contract-hired cars with a CO2 output of 130g/km or below, there is currently no disallowance.
  • Reduced administration
  • On-going advice and support
  • Road Fund Licence provided (vehicle excise duty paid) for duration of contract
  • Optional maintenance package
  • Breakdown rescue cover included

Disadvantages:

  • Early termination can be expensive
  • If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
  • You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that stated in the 'Fair Wear and Tear Guide'
  • You must have fully comprehensive vehicle insurance
  • You will never own the vehicle as there is no option to buy it

 

More Information on Business Contract Hire:

Contract Hire is a very popular choice for VAT registered companies as they can claim back 100% of the VAT on the finance element of the vehicle lease (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 also 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.

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