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Myth Buster: Business Contract Hire is cheaper than Personal Contract Hire

LEASE EXPERT

This is the brand new segment to our weekly mailer and blog, where each week a member of our team will be updating you with the latest from the leasing world. To start us off, our Sales Director, Ryan Parke, has put together some information to bust the myths when it comes to Business vs Personal Contract Hire.

"When our Brand Manager, Sydney, suggested we used this segment to bust common leasing myths, I jumped at the opportunity! Continue reading for answers to the most common leasing myths!" - Ryan Parke

'Business Contract Hire is cheaper than Personal Contract Hire'

FALSE - The main difference between the two kinds of lease being what kind of an ‘entity’ (if it’s polite to use that word when talking about real people!) will be paying for the agreement. In a situation where you or I are paying for the agreement ourselves, even if we are being paid a car allowance by our employer, we would be taking out a Personal Contract Hire (PCH) agreement. If, however, our employer was to lease a vehicle and allow us to use it as a company car (rather than giving a car allowance), they would take out a Business Contract Hire (BCH) agreement.

As VAT registered businesses claim back a proportion of the VAT when they buy products and services, a BCH lease is usually advertised before VAT, leading to a lower advertised rental price. Unless there is an offer which is only valid for businesses, the rental prices are usually the same prices when you take the VAT into consideration. On top of this, there are another two reasons why even larger businesses consider their directors and team members taking out PCH agreements rather than the business taking on a BCH agreement. Let’s jump into these in more detail.

'BCH agreements are always the best option for businesses of all sizes'

FALSE - This one is very specific to the circumstances and mission of the business, but many instances the staff being paid a car allowance or being refunded for their business uses, as part of their expenses, might suit the business better. During the first three years of a company’s journey, paying a car allowance to team members means the business takes on less financial obligation. Directors do not have to give guarantees and managers won’t be left with spare vehicles if there is a change to the team.

The situations where a BCH lease does tick the boxes, is in instances where the vehicle is a commercial vehicle, being used as a pool car or when the same vehicle would be required even if the team member using it were to change.

As a partner of 3 funders who welcome new start businesses, Lease Comparison are well positioned to source highly competitive offers even for the newest companies.

'Business lease is always the best option for company directors in SMEs'
FALSE - If business is good, the team is small (but do a great job!), and you find yourself working evening more often than you’d like, you might be one of the thousands of small business owners or operators who form the backbone of the UK’s economy.

You know that leasing is for you, you’ve done your research, but you are the heart of your business, and the business is you! How do small business owners choose between a business and personal lease when the vehicle is for themselves? This is a great question, and I want to run you through some of the trends we are seeing at Lease Comparison that are saving our clients a fortune.

While it is tempting to rush into a business lease, for many businesses the amount of VAT they can actually claim back is 50% of the vehicle rental. On a lease of £300 a month, this would be a saving of £30 a month.

But if you were to forgo the 10% saving and take out a personal lease, as a director you might make a large saving on your P11D and tax return at the end of the year, and if your business pays for your business usage as part of the government AMAP program, the usage is 100% corporation tax deductible too – saving both you and your business greatly over the length of the agreement. At present the rates of company car tax are due to be revised by the Government before many longer lease agreements end too, so if the AMAP program is kept running by the Government in their Budget, the saving might even improve over the long term versus taking out a business lease through your own company.

Mission Accomplished - Myths busted!
Our aim has been to challenge some of the conventional wisdoms surrounding Business and Personal lease, and over the years we have seen a great variety in the circumstances and missions of the different business types Lease Comparison has worked for. If there is one thing my great team and I have learned, its this: With such a rich diversity in the way our business clients operate and the variety in what they all hope to achieve, our role is to listen to you.

The way you win your clients, the products and services you offer them, and the way you keep your people happy; that’s your thing. The way you save on the costs of your fleet; that’s our thing. Give us a call and put us to the test!

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Posted on 11th January 2019 at 5:05 PM

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