Business Contract Hire (BCH) finance guide
Business Contract Hire (BCH) is a car finance plan — but for businesses and companies only, not for private buyers. To understand more about BCH and who is eligible for an agreement, our quick guide here covers all the basics.
Mon Motors BCH deals
What is Business Contract Hire (BCH)?
As the name suggests, Business Contract Hire (BCH) is a finance product for businesses and companies looking to lease a new car, van or commercial vehicle for a period of time.
It works in a similar way to Personal Contract Hire (PCH), but is often more cost-effective for VAT-registered businesses. This is because businesses can reclaim up to 100% of the VAT on the monthly rentals if the vehicle is used solely for business purposes, or 50% if the usage is split between business and private journeys.
It’s a popular option for businesses who might want to lease cars as fleet vehicles, or on behalf of individual employees. A fleet manager needing to lease 25 vehicles, for example, might consider a BCH agreement. So might a business wanting to lease company cars for certain employees.
Understanding Business Contract Hire
How does BCH finance work?
Business Contract Hire (BCH) is an identical product to Personal Contract Hire (PCH), but is available only to businesses. It’s not for personal applicants — though it can be driven as a private vehicle and isn’t just restricted to business use.
The only difference is when referring to BCH the prices quoted are less the VAT; the customer still has to pay the VAT but it’s assumed that the business is VAT registered and therefore would offset this in full, or part, against their VAT bill.
You do not need to be a large company to apply for BCH. However, your business must be a legitimate, registered entity. To qualify for a Business Contract Hire agreement, your business must be one of the following:
- VAT-registered company
- Sole trader with a bank account in the sole trading name
- Partnership with two or more partners working in the business
- Public limited company (PLC)
- Private limited company
- Limited liability partnership (LLP)
- Registered charity
Why is business car lease cheaper than personal?
Business lease deals are usually cheaper than personal leases as you can claim back 100% of the VAT on monthly payments and any maintenance agreements, as long as the car is used solely for business. To qualify, you must be a VAT-registered company. This makes it cheaper than a Personal Contract Hire (PCH), where VAT is always included in the price.
If the car is used for personal use as well, you can only claim back 50% of the VAT on the monthly payments. To claim 100%, you’ll need to track the car’s mileage to prove it’s used exclusively for business. When personal use is involved, the personal mileage must be deducted from the total, as it will be subject to VAT like a personal lease.
The business leasing the vehicle pays an initial rental payment followed by fixed monthly payments for the duration of the agreement, which is usually between two and four years (24 to 48 months).
Some BCH deals offer to cover maintenance, servicing and tyres as part of the contract, although typically incur an additional cost. Businesses can choose to cover just servicing, servicing and maintenance, or all three elements. This is also available with PCH too.
What to expect when your BCH agreement ends
What happens at the end of a BCH agreement?
Like PCH, BCH is a simple leasing arrangement. There is no option to buy. At the end of the agreement, the vehicle is collected by the finance company and the business can renew a new BCH deal if it chooses to.
There are some factors to consider at the end of a BCH agreement. The contract will have included an annual mileage allowance; if that’s been exceeded there will be an excess mileage charge to pay. Although this might only be a few pence per mile, it can mount up depending on the volume of additional mileage record.
If the business leasing the car didn’t opt for a maintenance package as part of the agreement, the vehicle must be returned in appropriate condition. This means potentially paying for servicing and repairs. Any damage to the vehicle during the lease may also result in additional charges.
