A Guide to Business Contract Hire
Business Contract Hire is a credit agreement between any trading business (sole trader, LLP, Ltd or PLC) and a finance company. The finance company owns the vehicle, and the leasee is essentially paying for the depreciation in value of the vehicle during the contract duration. Therefore to get the best lease prices possible, businesses should look to take out a contract on cars which hold their value well over time. There are many benefits for a business investing in contract hire compared to finance purchasing. You can read more in our buying versus leasing guide.
What's included in Business Contract Hire?
- Total vehicle management package included as standard.
- Road tax paid throughout the contract.
- Tailored contract, term and mileage.
- Tailored payment plans according to your needs.
- The option to bolt on additional services to suit your fleet such as maintenance.
- Quotation can be based on net rental, effective rental and Whole Life Cost.
What are the Benefits of Business Contract Hire?
Businesses can gain numerous financial and operational benefits from contract hire:
- Better Cash Flow Management - Your business is only paying for the depreciation of the vehicle over the length of your lease contract. Therefore the total cost is much lower compared to taking out finance repayments on a car or buying one outright. This frees up more cash for your business to spend on development and growth.
- Repayments can be claimed as a company expense - If the cars you lease emit equal to or less than 130g/km of CO2, you can claim back 100% of the rental payments against tax. However, even if the CO2 emissions exceed this, you can also claim back rentals against tax, but only at 85%.
- VAT Benefits - 50% of your VAT on contract hire payments can be claimed back and 100% of VAT on maintenance can be reclaimed.
- No need for vehicle administration - The leasing company handles all administration of the vehicle throughout your contract which eliminates the need for businesses to spend valuable resources doing this in-house.
- Increased return on investment (ROI) - Leased cars are not counted as assets. Therefore your company’s balance sheet will show an immediate improvement in the “rate of return” on capital employed (via the asset value of the balance sheet being reduced).*
* Subject to restrictions / Source BVRLA
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Initial Payment - This is your first payment which is usually due around 7-10 days after you actually receive your vehicle. It is a larger amount than the rest of your payments throughout the lease contract. It will be calculated in a multiple of your "standard" payments (usually 3, 6 or, in rare cases, 9 times the amount).
Number of Monthly Payments - As standard car leasing contracts last either 2, 3 or 4 years, this is split down into monthly payments so you can select your contract length as required.
Miles Per Annum - On every contract there is an agreed amount of miles that the user is allowed per year. However, the mileage use isn't checked until you return the car at the very end of your contract; so as long as you average out to your selected miles per annum there won't be any issues. If you do go over your limit, there will be a small surcharge per mile. This varies from car to car so check with your sales advisor for specific models.
Maintenance - This is an optional extra which covers all routine maintenance, servicing, tyres, batteries, exhausts and any necessary car repair costs but not accident damage. See the full car leasing maintenance guide for more details.
- Colour Preference - You can choose your preference of paint colour for most vehicles. However leaving this blank will allow the sales person to source multiple options for faster delivery. Note: metallic paint may cost extra.