Benefits of Business Contract Hire

Business contract hire (BCH) gives businesses a simple way to drive a new car without buying it outright. You pay an initial rental followed by fixed monthly rentals for an agreed term and mileage, then return the vehicle at the end of the contract.

The main benefits of business contract hire include lower upfront costs, predictable monthly payments, no responsibility for the vehicle's depreciation and the flexibility to change vehicles regularly. Maintenance can also be added to some agreements.

But is business contract hire right for your business? Here's what you need to know.

What is Business Contract Hire?

Business Contract Hire is a type of business car leasing designed for companies and other eligible business users.

You choose your vehicle, contract length and expected annual mileage. You'll then pay an initial rental followed by monthly rentals for the remainder of the agreement.

At the end of the contract, you return the vehicle to the finance provider, subject to the agreed mileage and fair wear and tear conditions.

Unlike buying a vehicle, you don't own the car at the end of a business contract hire agreement.

If you're new to business leasing, our business car leasing guide explains how it works and the options available.

What are the benefits of Business Contract Hire?

1. Lower upfront costs

Buying a new car outright requires a significant amount of money upfront. Business Contract Hire allows you to spread the cost over the agreement instead.

You'll typically pay an initial rental followed by fixed monthly payments, meaning you can access a new business car without tying up a large amount of capital.

For businesses where cash flow is important, this can be a major advantage.

2. Predictable monthly payments

Your business contract hire payments are agreed at the beginning of the contract, making your vehicle costs easier to budget for.

Fixed monthly rentals can make it simpler to:

• Plan your business expenses
• Forecast your monthly outgoings
• Manage cash flow
• Budget for your company car

Your contract will also set out the agreed mileage and term, giving you a clear understanding of your vehicle costs from the outset.

3. No depreciation to worry about

One of the biggest costs of owning a new car is depreciation. Its value will normally fall over time, and you're responsible for the financial impact when you eventually sell it.

With business contract hire, the leasing company takes on the risk associated with the vehicle's future value. When your agreement ends, you return the car rather than having to sell it yourself. This means you don't need to worry about finding a buyer, negotiating a resale price or wondering how much the vehicle will be worth.

4. Drive a newer car more often

Business contract hire can make it easier to change your vehicle every few years.

When your agreement ends, you can return your existing car and choose a new one. This gives you access to newer models and the latest developments in:

• Safety technology
• Fuel efficiency
• Driver assistance systems
• Connectivity and infotainment

A newer, well-maintained vehicle can also help create a professional impression when visiting customers or attending business meetings.

5. Maintenance can be included

Maintenance isn't automatically included with every business contract hire agreement, but you can choose to add a maintenance package.

Depending on the agreement, this could cover servicing, MOTs where applicable and replacement tyres.

A maintained contract can make running a business vehicle easier by helping you budget for routine maintenance rather than paying for these costs as they arise.

6. Potential tax and VAT benefits

Business contract hire can offer potential tax and VAT benefits for eligible businesses.

For example, a VAT-registered business may be able to reclaim a proportion of the VAT on lease rentals, depending on how the vehicle is used.

There can also be tax considerations around company cars and business vehicle costs.

Tax treatment depends on your individual circumstances, so it's important to speak to your accountant or tax adviser before entering into an agreement.

For more information, see our guide to business car leasing tax benefits.

Business Contract Hire vs Buying

The biggest difference between business contract hire and buying is ownership.

Neither option is automatically better. It depends on what matters most to your business, including your budget, how long you want to keep the vehicle and whether you want to own it.

Read our business leasing vs buying guide for a more detailed comparison.

Business Contract Hire vs Finance Lease

Business contract hire and finance lease are both business vehicle leasing options, but they work differently.

With business contract hire, you return the vehicle at the end of the agreement. With finance lease, the business takes on more responsibility for the vehicle's future value and there are different options available at the end of the lease.

If you're deciding between the two, our business contract hire vs finance lease guide explains the key differences.

Is Business Contract Hire Right For Your Business?

Business Contract Hire could be a good option if your business:

• Wants predictable monthly vehicle costs
• Wants to keep upfront costs lower
• Doesn't need to own its company cars
• Wants to change vehicles regularly
• Has a reasonably predictable annual mileage
• Wants the option of adding maintenance

It may not be the right choice if you want to own your vehicle or plan to keep it for many years.

The best option will depend on your circumstances, budget and how you use your business vehicle.