BCH Finance - Business Contract Hire and Business Leasing Guide
What Is Business Leasing?
Business leasing, also know as Business Contract Hire (BCH), refers to the long term renting of a brand new car, van or fleet of vehicles for a set period of time usually between 2-4 years. You specify the mileage allowance when choosing the car so will need to take into account the anticipated use of the car and over the contract you will make fixed monthly payments. At the end of the contract you simply return the car with no further costs assuming the condition of the car and mileage is as agreed at the start of the contract.
BCH has multiple benefits for your business including:
- If the vehicle is only used for business use you can claim back 50% of VAT on monthly payments or 100% VAT on commercial vehicles
- Payments are 'off balance sheet' so are not shown as a liability or asset for the business
- Lower BIK (benefit in kind) tax - employees with use of a business lease car can benefit from lower BIK rates
- Fixed monthly rentals makes it easier to budget
- Access to a variety of brand new vehicles with full manufacturer warranties from Inchcape
- Flexibility when choosing a mileage allowance and length of contract, so the contract will suit your business needs
- Road Tax included for the entire contract duration
BCH is available to:
- Sole Traders
- VAT Registered Companies
- A Partnership - two or more partners working in a business
- Limited Companies, Private Limited Companies and Limited Liability Partnerships
Documents required may vary but will may include:
- Details of the business - name, address, revenue and ID numbers
- Company director information
- Business banking details
- Bank statements
- Director's guarantee to monthly payments
Business Leasing Costs
On a BCH contract the business who took out the contract is responsible for upkeep of the vehicle, this includes all maintenance and replacement of consumable parts such as tyres.
When building your BCH quote you are able to add a maintenance package which covers all maintenance and replacement of parts such as tyres once they have worn out or been damaged.
Many new cars come with a servicing package included so it is worth costing out your BCH with and without the maintenance package to see which is most cost effective. However one of the main advantages of BCH are the fixed monthly costs so by selecting a maintenance package you can avoid any unexpected costs further.
When choosing your BCH vehicle you will be able to customise the finance quote and change the annual mileage allowance to suit your business requirements.
Whilst the lower the mileage allowance the lower the monthly costs it is worth setting the correct mileage even if it costs more as most BCH contracts will have an excess mileage charge in which you pay a fee for exceeding the agreed mileage. These can range from 4-50p per mile depending on the agreement.
The monthly cost of a BCH agreement is calculated using a number of factors:
- The value of the vehicle - the higher the cost, the higher the monthly cost is likely to be.
- The term - the length of contract.
- Mileage allowance - the higher the mileage the more it will depreciate over the term, so the monthly cost will be higher.
- Residual value - the predicted end value of the vehicle, the less the car depreciates, the lower the monthly cost.
- Interest rates - the higher the interest rate, the higher the cost of borrowing so the higher the monthly cost.
- Deposit - The more you pay upfront, the lower the monthly cost will be.
BCH costs less than other car finance agreements such as Personal Contract Purchase (PCP) and Hire Purchase (HP) which allow you to own the car at the end. BCH is cheaper as a lease it covers the depreciation of the car's value over the contract period whereas with personal finance you pay for the total cost of the car plus interest. Additionally as discussed, businesses can claim back 50% VAT on BCH monthly payments.
When you see BCH deals advertised these won't include VAT in the monthly price whereas personal deals will.
BCH is popular for business as it offers a cost effective way to fund business transport. Businesses can claim back 50% of VAT on cars and 100% on commercial vehicles. When the contract includes maintenance as well, the VAT on servicing can be 100% claimed back as well.
To claim back the VAT you will need to visit the goverment's website and follow the step by step process to claim back the VAT.
Leasing an Electric Vehicle
Leasing an electric vehicle (EV) is becoming more popular as it looks more likely that EVs will eventually replace traditional combustion engine cars. Additionally for businesses there are multiple benefits to leasing an EV.
In the 2021 tax year there is 0% tax on Benefit in Kind for EV company cars, which is paid if used for personal use as well as business. Businesses are also able to claim 100% capital allowance on EV purchase which means you can deduct the full cost from your company's profit before tax, which makes leasing an EV a very cost effective proposition.
To discover more of the benefits for your business to leasing an EV contact Inchcape.
Business Leasing Process
The BCH process is simple and at Inchcape can be done online.
- Search for your ideal car by browsing the offers available. The car needs to fit your requirements and monthly budget.
- Choose the terms - decide how much deposit you are willing to put down, how long you want the contract to last and the number of miles you predict you'll drive.
- Undergo a credit and business check - to ensure eligibility and affordability.
- Arrange collection or delivery.
BCH deals rarely include insurance, so it is up to the finance holder to arrange the insurance. Finance providers will require their vehicle's to be on full comprehensive insurance policies to provide protection for the car.
Therefore you will need to arrange fully comprehensive insurance for your lease car before it arrives, you can request the registration from the lease company in order to do this.
End of Term Process
When your lease agreement term is coming to its end you will be contacted to remind you of the return date for the lease vehicle. The car will be collected around this date and inspected for damage and the mileage recorded. The inspection will take into account Fair Wear and Tear which are general expectations of the condition of the car given its age and mileage as it would be unrealistic to expect the car to be factory fresh at the end of the term.
For any damage that is deemed to be due to neglect or poor treatment of the car you may be billed for the repairs. If you have exceeded the agreed mileage you may have to pay an additional mileage fee.
Once this inspection has taken place, you can either start a new lease with a new car or walk away with no further charges or commitments.