Business Contract Hire is an extremely cost effective way to run a car lease through your company. With over half of business cars hired with this funding method, its a very popular option.
Business Contract Hire is usually referred to as leasing, it allows company’s to take on cars for a set period of time, usually 24-48 months but can be as short as 12 and 18 months on Short Term Car Leases.
The business taking out the contract hire never owns the vehicle and will pay for the vehicle on a monthly basis. The benefit to this for businesses is that the monthly payments are fixed.
At the end of the contract the vehicles are simply handed back to the leasing company and a new contract can be taken out.
How does Business Contract Hire Work?
Every vehicle you place on business contract hire is different and sometimes a more expensive brand can work out cheaper than the regular ‘everyday’ brands such as Ford or Vauxhall.
The contract hire funder works out the monthly cost of the vehicle by working out what the vehicle will be worth at the end of the term based on the duration and the mileage required. This is also known as the ‘residual value’ and takes not only the vehicles depreciation into account but also the price that they pay for the car.
The leasing funder will then deduct the residual value from the retail cost of the vehicle, leaving you to pay the difference in contract hire rentals.
Positives vs. Negatives
There are many different positives and negatives and each business is different, therefore we always advise to speak to your accountant to see if business contract hire is right for you and your company.
- Low Initial Payments – Unlike Hire Purchase or Operating Leases, the initial payment found on the majority of contract hire agreements usually requires the equivalent to 3 or 6 payments upfront.
- Tax Advantages – Some or all of your business contract hire can be offset against taxable profits, but its always best to speak to your accountant.
- Balance Sheet Free – As you are not purchasing the vehicle as an asset, the vehicle doesn’t have to show on your balance sheet freeing up capital for other areas of the business
- Fixed Motoring – The monthly payment should never change for the duration of the contract, so long as you don’t adjust the mileage parameters. If you really want true fixed cost motoring, you could even add the optional maintenance on to the rental. However, everything else is covered including the Vehicle Excise Duty. All you need to provide is the fuel and the insurance.
- Excess Mileage – Always be upfront about the mileage you will be doing, as it could come and bite you at the end. Excess mileage rates can vary from 6ppm to £3.50ppm, so make sure you tell the truth, even if you think you will save a few quid.
- No option to purchase – You won’t be given the option to purchase the vehicle, this is mainly due to the tax benefits. There are certain companies out there that can purchase the vehicle on your behalf and sell it back to you for a small fee.
- Damage – Standard wear and tear is usually allowed depending on the duration of the contract. Short Term Leasing doesn’t usually have the same standards, so just be careful not to damage the vehicle. Any severe damage and you will get a bill. Should you not have the vehicle repaired to the required standard, you could be landed with a bill to rectify the work you thought you’d saved money on.
How do I get Business Contract Hire Quotes?
Simple, just complete the enquiry form below or on our homepage and we will pass the information through to the most relevant leasing broker.
What if I’m a New Start Business?
If you’re a new start business looking for a business contract hire or lease, then you may find it difficult to get a credit line. However, we work with a team of short term car lease providers who offer terms to new-start business owners.
The terms offered may differ from those advertised on their websites and may require a guarantee, refundable deposit or a higher initial rental. Please complete the form on the homepage and when contacted, ask them to put you forwards as a new business looking or a short term car lease.