Business Contract Hire Explained
What is business contract hire?
Business contract hire is a popular long-term vehicle rental agreement suitable for sole traders, partnerships and limited companies.
It’s a particularly popular option for VAT registered companies, as they can claim back 50% of the VAT for the supply of the vehicle.
How could it work for your business?
If your company leases a vehicle on a contract hire basis, you will pay to rent the vehicle in monthly instalments for a contract of 24 or 48 months, for example. Once the contract is up, the vehicle is returned to the leasing provider, leaving them to worry about depreciation values and disposal of the car or van.
Contract hire means your company can concentrate on its core activities, while avoiding the financial risk and administrative burden of owning your vehicle or fleet.
The key features of business contract hire
- Lending provider remains the owner of the vehicle, meaning the vehicle appears ‘off the balance sheet’ of your company
- Fixed monthly rentals cover the rental of the vehicle, plus any maintenance options if chosen
- The monthly rentals are calculated by taking the following into consideration:
- The cost of the vehicle
- The contract period
- Anticipated residual value of the vehicle (how much the vehicle is likely to be worth at the end of the contract)
- Mileage allowance (as chosen by you before the start of your contract)
- Any additional options, such as a maintenance contract
- Vehicle tax is provided for the full term of the contract
The key benefits of contract hire for business
- Low initial rental
- Fixed rentals for the whole package, making budget planning easier
- Flexible terms to meet your company’s requirements, with variable contract duration and mileage terms
- Contract hire removes depreciating assets from your company’s balance sheet, and the associated risks of owning vehicles, such as depreciation and disposing of the vehicle
- Maintenance of vehicles can be included in the monthly fees, spreading the cost
- Flexible invoice arrangements help to considerably reduce administration
- If yours is a VAT registered company, you can claim back 50% of the VAT on the finance element
What happens at the end of the contract?
At the end of the contract, the vehicle is returned to the leasing provider, meaning you are then free to hire another vehicle or vehicles, without any financial obligation.
If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a ‘pence per mile’ basis as set at the start of your contract.
When returning your vehicle, it will also be assessed according to the BVRLA Fair Wear and Tear guidelines. Any damage that falls outside of these guidelines may be subject to end-of-lease penalty charges. For more information on this, visit our Fair Wear and Tear guidelines page.