If you need access to a car for business purposes and could do without the inconvenience of legally owning one, business contract hire — commonly referred to as BCH or business car leasing — could be the route to (eh hem) drive down.
Even if you do have the capital to buy a car outright, it may be a smarter idea to invest your money in growing your business. That said, most leasing plans have a 33,000 mileage limit, so it might not be a viable option if you plan to exceed that.
As with a business credit card, business contract hire is the company-friendly version of personal contract hire (PCH). The main difference being that instead of leasing a car solely for personal use, you’re leasing it on behalf of the business.
As well as protecting capital, business car hire can:
- Be beneficial for tax — car leasing is a tax-allowable expense.
- Save on VAT — VAT registered companies can claim back 100% VAT if the car is for business use only and 50% on the finance part if also used personally.
And the cons?
- If you don’t stick to the contractual terms charges will apply.
- The car will have to be serviced and this isn’t usually included in the contract cost.
So how does BCH hire work, and is it the only option available?
The title of this blog post would suggest not.
The way you choose to finance your business vehicle will depend on your company's tax circumstances, cash flow and other factors. We’d recommend seeking expert advice before signing on the dotted line.
Let’s take a quick look at each option.
1. Business Contract Hire (BCH)
Contract Hire is the most popular car leasing choice for businesses. With this option, you’ll pay a set monthly amount over an agreed period. Once the contract term comes to an end, you simply return the car to the hire company.
The contract hire company calculates the monthly payments based on the value of the vehicle at the time of hire and how much it'll be worth at the end of the agreement – known as the guaranteed minimum future value (GMFV).
If you only need a car occasionally you rent one for your business on a temporary basis as you would do for personal use on holiday. Some operators even offer a service that includes delivering and collecting the car from your office.
Keep in mind: You’ll need comprehensive insurance.
2. Business Contract Purchase
Business Contract Purchase (BCP) is similar to BCH, in that you pay a predetermined amount each month. The main difference is that you have the option to purchase your car(s) from the finance company at the end of the term.
Keep in mind: You can also part exchange for a new car or fleet.
3. Sale & Leaseback
If you want to release funds, you can sell your car or fleet to a leasing company at its current market value and rent the car back from them over a set period of time. It’s a viable way to inject cash back into your business and stabilise your cash flow. Depending on the terms of the agreement you probably won't have to maintain or repair the vehicles yourself.
Keep in mind: The car’s asset value will be removed from your balance sheet.
4. Employee Car Ownership Scheme
With an ECO scheme, the car is owned by the employee, not the company. You, as the employer, don’t have to pay national insurance on the car benefit and both the company and employee can contribute to the fixed monthly payments. It can be a more cost-efficient option if you run a large fleet and your staff turnover is low.
Keep in mind: ECO can be complex and time-consuming to organise.
When it comes to finding a business hire car, search engines are your best friend. Most people head to business car leasing comparison sites, whereas others will contact brokers directly to get quotes.