Business Contract Hire (BCH) agreements can be a tax efficient and cash flow beneficial way for a vat registered company to run cars. Essentially you will be renting a car for a set period of time and mileage, ( 24 to 60 months and any annual mileage from 5,000 to a maximum of 150,000 for a diesel car or 120,000 for a petrol car ). At the end of the agreement the car is handed back to the lease company and the customer starts a new agreement on their next choice of vehicle, subject to status.
Monthly rentals, which will be subject to vat, are dependent upon the model, specification, the term and annual mileage chosen. Typically if the car is used for any private mileage then 50% of the vat can be reclaimed. Advance rentals are usually the equivalent of 3, 6, 9 or 12 monthly rentals. Road Fund Licence is always included in the rental. Full AA cover is always included up to 3 years and can be added for longer terms.
Servicing and maintenance requirements, to Jaguar’s schedule for your vehicle, can be covered for an additional cost, which also covers consumable items such as tyres, brake pads, brake discs, batteries, exhausts and even wiper blades for the contract duration. This element of the rental is fully claimable against Corporation tax. Should your chosen mileage prove inaccurate during the term of the contract this can be adjusted up to avoid excess mileage charges or equally down to reduce the rentals. Some wear and tear on the vehicle is expected when handing it back, but anything excessive will be charged to you if not repaired prior to return, as defined by the BVRLA Fair Wear & Tear Guide.
As you will enter into a legal agreement some charges will be applied if you terminate early, typically half of the remaining rentals. There is no opportunity for equity or ownership at the end of the contract but neither is there a need to dispose of the vehicle or suffer any potential value drops due to the market. Always check with your financial advisors regarding the suitability to your business.
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