If you are intending to pay your monthly rental payments from a Business bank account then you are a Business leasing customer. All the rates available to Business customers on this site are listed as Excluding VAT.
Regulated or Unregulated Contracts
Finance agreements for Limited Companies, Limited Liability Partnerships (LLP) and Partnerships with more than four partners are Unregulated so are not specifically covered by the FCA (although you do still have some recourse to them in the event of complaint) and are not afforded any cooling off periods.
Business Contract Hire
Business contract hire is a popular long-term vehicle rental agreement suitable for sole traders, partnerships and limited companies, that is based on using a vehicle as opposed to owning it. 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. 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 anything between 18 and 60 months. Once the contract period ends, the vehicle is returned to the leasing provider, leaving them to worry about depreciation values and disposal of the car or van. Contract Hire vehicles can sometimes be purchased at the end of the contract but the price is defined at the end of the contract, not the beginning, and the finance company is under no obligation to sell you the vehicle. Contract Hire makes it easier for your company to concentrate on its core activities, while avoiding the financial risk and administrative burden of owning your vehicle or fleet.
Key Features of Business Contract Hire;
- The finance company 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 into consideration; the cost of the vehicle, the contract period, the anticipated residual value of the vehicle (how much the vehicle is likely to be worth at the end of the contract), the mileage allowance (as chosen by you before the start of your contract) and any additional options, such as a maintenance contract.
Vehicle tax is provided for the full term of the contract.
Key Benefits of Business Contract Hire;
- Low initial rental when compared to the total capital cost of the new vehicle
- 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.
- Removes depreciating assets from your company’s balance sheet, and the associated risks of owning vehicles, such as depreciation and disposing of the vehicle.
- Servicing and maintenance of the lease vehicle can be included (optional) in the monthly rentals to provide peace of mind and support budgeting/allow you to spread 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 and 100% of the VAT on the maintenance element (if chosen)
- At the end of the contract, the vehicle is usually collected by the finance provider
Other Considerations for Business Contract Hire;
- 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. Full details of the scale of this termination charge will be provided in your Terms and Conditions
- 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.
- You must return the vehicle in a well maintained condition. Any damage over and above that stated in the Fair Wear and Tear Guide will be subject to additional charges.
- Vehicle must be insured with full comprehensive cover.
- Vehicle Modification – The vehicle cannot be modified in any way. Conversions on chassis cab commercial vehicles are allowed by must be done as part of the lease and before delivery.
- You may never own the vehicle as there is usually no option to buy it
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, request a copy of our Fair Wear and Tear guide.
- 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 in certain circumstances.
- 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 a business for a contract. Generally speaking you need to have published one set of audited accounts but speak to us if this isn’t the case as we may still be able to help
- 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 business to have a strong trading history. Please ask us if you are interested in this type of payment profile.
- Is Insurance included as part of the standard lease price? No, insurance is not included in the monthly rental. It is a stipulation of a Contract Hire or Personal Contract Hire agreement that you have a Comprehensive insurance policy in place prior to delivery of the vehicle.
- Can I part exchange my current car as part of the lease agreement? No not directly but we do work with partner who can provide you with a part exchange price and then we could tie in collection of your part exchange vehicle with delivery of your new lease vehicle.
- Who supplies the vehicle that you offer on lease? We work with a premier network of franchised supplying dealer groups across the country, scouring their rates daily for who is offering the best purchase terms. These suppliers are approved by the manufacturers and will look after delivery of your vehicle.
- What is the initial outlay? Finance companies request an initial rental that is usually made up of between 3 and 9 multiples of the monthly rental and this is taken in month one of the contract. In some occasions a the finance provider may consider one rental in month one subject to the strength of the companies trading history. This initial payment should not be seen as a deposit payment but it does allow businesses with a low cash outlay to enter into this type of lease contract.
- 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.
Business Contract Purchase
Business Contract Purchase is a finance agreement for VAT registered companies and businesses that want to own their vehicles but want to avoid the risk of depreciating assets. A company chooses a brand new vehicle, pays an initial deposit and then continues to pay for the car or van in fixed monthly instalments. With a contract purchase agreement, the monthly finance payments are not subject to VAT. At the end of the contract, the company has the option to purchase the vehicle at an agreed price. Contract purchase is ideal for businesses that like to run high value vehicles and don’t want to have to worry about the risk of depreciation. If yours is a VAT registered company, you won’t pay VAT on the monthly finance payments although if you take out an optional service or maintenance package, VAT is payable on the service costs.
Contract Purchase has clear benefits for business users. Payments for depreciation and interest are not subject to VAT. In addition, Business Contract Purchase arrangements are treated for tax purposes as a purchase by the customer where the vehicle is bought into use. As a result a 25% writing down allowance can be claimed by the customer (currently at a maximum of £3,000 per annum)
Finance Lease is a popular agreement for businesses needing cars, vans and commercial vehicles where contract hire is not suitable. It offers flexibility and tax advantages to eligible companies who require one or more vehicles but don’t have the accessible funds to pay for them up front. As part of a Finance Lease agreement you can choose to pay either the entire cost of the vehicle, including interest charges, over an agreed period. Alternatively, you can opt to pay lower monthly rentals with a final payment based on the anticipated resale value of the vehicle (otherwise known as the ‘balloon payment’). Throughout the agreement, the vehicle remains the property of the leasing company.
This type of agreement is only available to business customers – including limited companies, self-employed people and sole traders; it is not available to private individuals. It is a particularly popular option for businesses because of the significant tax advantages.
If your company chooses to take out a finance lease on a brand new vehicle, you will be hiring it for a specified period of time (two or three years, for example) and make regular monthly payments to rent it. Your business will be able to use the car or van without facing the high upfront cost of a new vehicle, handle the administration of the vehicle, and have the assets show on your company’s balance sheet. At the beginning of the lease, usage parameters for the vehicle are agreed. Providing these restrictions are met, monthly payments and interest rates are fixed for the duration of the contract.
If yours is a VAT registered company, you can reclaim between 50% and 100% of the VAT payments depending on whether you are renting a car or commercial vehicle. If your company is not VAT registered, you can choose to spread the VAT costs across the term of the lease by incorporating it into your monthly rental. Your payments can normally be offset against taxable profits (special rules apply to cars)
At the end of the contract the vehicle can either be sold by the user to an unrelated third party (some funders may handle the disposal in return for a small commission) or alternatively, the user can pay the outstanding “balloon payment” and operate the vehicle under a peppercorn agreement.
Key Features of Finance Lease
- Popular for business and commercial customers when contract hire is not suitable
- Allows your company to handle the administration of your vehicles, and have the assets show on your balance sheet
- Choose to pay the entire cost of the vehicle, including any interest charges, on a monthly basis or
- Pay lower monthly instalments with a final payment based on the resale value of the vehicle at the end
- At the end of the agreement, the vehicle is either sold to a third party or
- Pay the outstanding balloon payment and operate the vehicle under a peppercorn agreement
Key Benefits of Finance Lease
- Fixed payments for the whole agreement
- Low up-front costs – for just a small outlay, you can use the assets immediately.
- Claim up to 50% of the VAT on cars and 100% on commercial vehicles (subject to being VAT registered)
- Flexible repayment structure tailored to match your company’s cash flow.
- Fixed or variable interest options – you decide which suits you best.
- Tax advantages – VAT is payable on the rentals, not the purchase price, while payments can normally be offset against taxable profit (special rules apply to cars)
- No penalty charges for additional mileage or damage at the end of the agreement
- Although you will not own the vehicle, you will receive a very high % of the sale proceeds if the vehicle is sold to a third party at the end of the agreement
At the end of the contract, the vehicle can be sold to a third party, allowing your company to benefit from any available equity if it is sold for profit. If the sale price is below the agreed residual value, you will be liable to make a further payment to the finance company. Alternatively, you can choose to pay the outstanding balloon payment and operate the vehicle under a ‘peppercorn agreement’ – otherwise known as a secondary rental agreement.
Lease Purchase contracts are available to business customers only. It is an agreement designed to offer dedicated vehicle funding if your company eventually wishes to buy the vehicle, but doesn’t want to spend the money up front. Lease purchase is purely a finance package and does not include maintenance or other added-value services, such as those offered with a Contract Purchase agreement. As part of a lease purchase agreement, you will pay an initial deposit and then a series of monthly payments until the end of the agreed contract length. The initial deposit and monthly payments are worked out using the retail value of the brand new vehicle, the length of contract and the estimated residual value of the vehicle at the end of the contract.
Key Features of Lease Purchase
- Pure finance package – no maintenance packages or other services are included
- The vehicle will belong to your company once the lease purchase agreement has begun
- The slower a vehicle’s value depreciates, the better deal you will be able to get, as it is you who takes on the residual value
- The car or van is paid for via an initial deposit, low monthly payments, and a final balloon payment
- The vehicle must be purchased at the end of the agreement
Key Benefits Lease Purchase
- Your company will own the vehicle once the final balloon payment has been made
- Vehicle will be retained as a company asset
- Low deposit and monthly payments, freeing up company money
- Monthly payments are not subject to VAT
- The vehicle can appear as a balance sheet item; the value of it can be written down against taxable profits
- The vehicle is registered in the name of your company
- The balloon payment must be paid for at the end of the contract
- In some cases the balloon can be higher than its value at the end of the contract
- Vehicle must be insured with full comprehensive cover
At the end of a Lease Purchase contract, the company will pay a final balloon payment and take ownership of the vehicle. There is no other options at the end of a Lease Purchase. You are liable for the full value of the balloon and there is no option to return the vehicle at the end of the agreement.