Business Contract Hire vs Business Contract Purchase: Car Leasing for Business Owners

Updated 25 March 2025 | Published 2 August 2023

When managing a business, finding cost-effective and flexible ways to manage vehicle fleets can be a challenge. Two popular options for business car leasing – Business Contract Hire (BCH) and Business Contract Purchase (BCP) – offer distinct benefits. Each is designed to suit different business needs. This article will help you understand the key differences and similarities between BCH and BCP, so you can choose the option that best fits your company’s financial goals and operational requirements.

See also: Tax Implications of Business Vehicle Leasing

Similarities between BCH and BCP

Both BCH and BCP are designed to help businesses acquire vehicles without a large upfront investment. Here are some key similarities:

• Business-Focused Solutions: Both options cater to businesses, providing a flexible way to manage vehicles without a significant capital outlay.
• Fixed Monthly Payments: Both BCH and BCP offer fixed monthly payments, helping businesses manage cash flow and budget more effectively.
• Maintenance Packages: Many BCH and BCP agreements offer optional maintenance packages, which can cover servicing, repairs, and roadside assistance, ensuring hassle-free vehicle management.
• Access to New Vehicles: Both financing methods allow businesses to drive new, modern vehicles, keeping fleets reliable and up to date with the latest fuel efficiency and safety features.

Key Differences Between BCH and BCP

Understanding the differences between BCH and BCP will help you make the right choice for your business. Here are the key distinctions:

• Ownership of the Vehicle:
  • BCH: The business leases the vehicle, never owning it. At the end of the contract, the vehicle is returned.
  • BCP: The business has the option to buy the vehicle at the end of the contract with a final balloon payment, or return it.
• Depreciation Risk:
  • BCH: No depreciation risk, as the business does not own the vehicle.
  • BCP: The business assumes depreciation risk. If the vehicle’s market value falls below the balloon payment, the business could face a financial loss.
• End of Contract Flexibility:
  • BCH: At the end of the term, the vehicle is returned with no further obligation, offering flexibility to lease a new vehicle or explore other options.
  • BCP: The business can either make the balloon payment to own the vehicle, extend the lease, or return the vehicle with no additional financial commitment.
• VAT and Tax Implications:
  • BCH: Businesses can typically reclaim VAT on monthly payments, making it more tax-efficient.
  • BCP: VAT is paid upfront on the full purchase price, but a percentage may be reclaimable based on the vehicle’s business use.

Why Choose Business Contract Hire?

At Compass Vehicle Services, we recommend Business Contract Hire (BCH) for our customers, as it provides the following key benefits:

• Lower Financial Risk: With no concerns about vehicle depreciation or residual value, BCH helps keep your business finances stable.
• No Ownership Commitments: You don’t have to worry about making a balloon payment or dealing with the hassle of selling or disposing of the vehicle at the end of the term.
• Flexible End-of-Contract Options: At the end of the term, simply return the vehicle with no further obligations. You can choose to lease a new vehicle or explore other solutions.
• Improved Cash Flow Management: Fixed monthly payments provide predictability, making it easier to plan your business finances.
• Tax Efficiency: With the ability to reclaim VAT on monthly payments, BCH is a tax-efficient option.
• Access to New Vehicles: BCH ensures your business can always drive modern, efficient vehicles, keeping your fleet up to date with the latest technology and safety features.

Conclusion

Business Contract Hire (BCH) and Business Contract Purchase (BCP) each offer unique advantages for businesses looking to acquire vehicles without committing large capital outlays. BCH is particularly appealing for businesses that want a flexible, low-risk, and tax-efficient solution. By opting for BCH, you can manage your fleet with lower financial risk, better cash flow, and access to newer vehicles, all while avoiding the burden of vehicle ownership.

At Compass Vehicle Services, we feel that Business Contract Hire offers many advantages over BCP, and we’re here to help you find the right solution for your business.