Business Contract Hire is a method that businesses can finance their vehicles with a minimal down payment and an agreed mileage for the contract period. The minimum initial payment on BCH is normally three payments in advance, although this can be as low as one payment, or as high as twelve payments (or even a lump sum) upfront depending on the deal taken.
Deals are normally calculated over a two or three year period, these deals are often advertised as “3+23” or “3+35” contracts. This works with three payments in advance then 23 or 35 payments (taken by Direct Debit) over the rest of the term. There is also an option to take a maintenance package, which would provide services such as breakdown cover for the duration of contract, as well as cover all servicing costs, tyres and even puncture in some instances.
Mileage allowance is agreed in advance and the minimum is normally 6,000 miles per annum. The maximum is normally 50,000 miles per annum. Mileage over and above the agreed amount is charged at an excess mileage rate. This rate will be billed at the end of the contract.
Business Contract Hire is subject to VAT, of which 50% of the VAT on rentals can be reclaimed by VAT registered businesses (Often called “blocked VAT”). If a maintenance package has been taken, the business can reclaim the full 100% of the VAT element on those rentals. At the end of the agreed period the vehicle is returned to the finance company. Please note that any damage beyond BVRLA’s “Reasonable Wear & Tear” guidelines must be repaired prior to return. Otherwise this will be charged in addition to the contract.
This article provides general information to be used for your reference only and is not intended as a substitute for financial advice specifically directed at your business and taking account of the particularities of your situation.