Business Contract Hire (BCH)


Contract Hire was originally introduced as a fleet leasing product for business customers. Contract Hire for business is also known as "BCH" or just as a "business lease". Businesses who suit contract hire are looking for a long term rental contract (lease) that offers fixed payments for a set period of time. Businesses also benefit from the asset not appearing on their financial balance sheet and are also able to reclaim a proportion of the VAT assuming they are VAT registered. This page aims to cover the key features, benefits and downsides of the product to help you make an informed decision.

Key Benefits

  1. Affordable - Businesses benefit from fleet negotiated discounts to improve the affordability of a new vehicle.
  2. Budgetting - BCH offers fixed monthly rentals that can include additional services, such as maintenance, meaning that there will be less cash flow fluctuations.
  3. Free Up Capital - By leasing a vehicle rather than purchasing it businesses do not tie up capital in a rapidly depreciating asset.
  4. Off Balance Sheet - With BCH the asset (vehicle) is off balance sheet because it is owned by the finance company.
  5. VAT - 50% of the VAT on the finance rental and 100% of the VAT on the service rental is reclaimable.
  6. Risk Mitigation - There are none of the depreciation risks associated with ownership.
  7. One DD & Phone Number - BCH has the option to take a fully maintained contract with one direct debit. This makes the process of drivers booking a routine service easier to communicate and minimises one off costs in relation to routine servicing and maintenance.
  8. Road Tax - Is included for the duration of the contract.
  9. Protection - Businesses who take a BCH contract should be aware that this product falls under a trade body called the British Vehicle Rental & Leasing Association (BVRLA). We are members of the BVRLA and they will offer an impartial service to assist with disputes that cannot be resolved.
  10. Simplicity - BCH is a relatively simple financial product to understand. We will provide a formal quotation that breaks down the product in detail if you make an enquiry.

Potential Downsides

  1. Vehicle Modification - The vehicle can not be modified for any particular business purposes. Conversions on chassis cab commercial vehicles are allowed by must be done as part of the lease and before delivery.
  2. Mileage Allowance - The business is limited to the annual mileage chosen upfront, over and above which excess mileage fees will be incurred.
  3. Potential Damage Recharge - When the vehicle is collected at the end of the agreement it will be assessed on behalf of the finance company against the BVRLA's fair, wear and tear policy. This policy aims to do what it says on the tin and identify any damage that is not deemed as fair for the age and mileage of the vehicle. Finance companies are bound by the BVRLA's (trade body) guidlines when assessing damage but issues such as damaged alloy wheels or a deep scratch on the paint work could result in a charge to return the vehicle to the expected standard.
  4. Early Termination - If you need to exit the agreement before the end of the contract there is likely to be an early termination charge that will be payable.

FAQs

  1. Is business contract hire subject to VAT?
    Yes, VAT is charged but 50% of the VAT on the finance rental and 100% of the VAT on the service rental is reclaimable.
  2. What are the criteria for being able to get a vehicle on lease?
    We will introduce our customers to a finance provider. All finance providers have certain criteria that needs to be met in order to accept an individual for a PCH contract. Customers must be over 18 years of age, hold a valid UK driving licence, have 3 years' employment history and at least a reasonable credit rating.
  3. Can I lease a vehicle with only one rental in month one to keep the initial outlay to a minimum?
    Some finance companies will allow this but in most cases the provider will require the applicant to have a strong credit rating. Please ask our consultants if you are interested in this type of payment profile.
  4. Is Insurance included as part of the standard lease price?
    No, insurance is not included in the monthly rental. Please let us know if you would like to be introduced to an insurance provider.
  5. Can I part exchange my current car as part of the lease agreement?
    No not directly but we do work with a partner who can provide our customers with a part exchange price. This part exchange service would be tied in with the delivery of the new lease vehicle.
  6. Who supplies the vehicle that you offer on lease?
    We work with a premier network of franchised supplying dealer groups. These supplier are approved by the manufacturers and will take care of delivery when the time comes around.
  7. What is the initial outlay?
    Finance companies request an initial rental that is usually made up of between 3 and 9 times by the monthly rental and this is taken in month one of the contract. In some occassion the finance provider may consider one rental in month one subject to the strength of the individuals credit. This initial payment should not be seen as a deposit payment but it does allow customers with a low cash outlay to enter into this type of lease contract.
  8. What does 'payment profile' mean and what options do I have?
    The payment profile refers to the number or value of the initial rental and how many subsequent monthly rentals are contracted within the lease. For example you might see reference to 3+35 which is a 36 month lease with 3 rentals in month 1 following by 35 monthly rentals. This type of profile is known as a spread rental but there are other options depending on the finance company.

    Spread rental - This is the "standard" payment profile in today's market and the most commonly requested. All rentals on our website will be based on a spread rental basis. Should a customer take a 36 month contract, they will pay an initial rental in advance followed by 35 subsequent monthly payments and the contract ends on month 36. If the initial rental is higher it will reduce the value of subsequent rentals.

    Terminal pause - An example of a terminal pause profile is 3+33 for a 36 month contract. Essentially the last two months of the contract will not have a monthly rental. The customer pays the total balance across 34 months.

    Flexible initial rental - This is often used in the event that a customer has sold a previously owned vehicle and has a larger amount free to put down into the lease. In this case the customer might have a round figure to put down as the initial rental e.g. £5,000. The profile would be £5000+35 across a 36 month contract.


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