Business vs personal contract hire

Contract hire is a long-term rental of a vehicle. You choose a car or van, agree a term and a mileage limit, pay a regular rental, and hand the vehicle back at the end. You never own it. The same basic idea is sold in two forms: business contract hire and personal contract hire. They look similar on a quote, but they differ in who can take them out, how they are treated for tax and VAT, and what the paperwork asks of you.

This page explains the differences in plain terms. We are a credit broker, not a lender, so we can introduce you to funders but we do not make the lending decision ourselves. Nothing here is tax advice, and you should check your own position with an accountant.

The options

Business contract hire is for limited companies, sole traders, partnerships and other business customers. The vehicle is used for the business, and the rental is usually treated as a business expense. Points that often come up:

• VAT. Business rentals are normally quoted excluding VAT. A VAT-registered business may be able to reclaim some or all of it, depending on the vehicle and how it is used. Vans are generally treated differently from cars here.
• Business use. The agreement is in the name of the business, and the funder will usually want to see details of the company or trading history.
• Tax treatment. Rental costs can be part of how the business accounts for the vehicle. Cars often have a restriction on part of the rental, tied to CO2 emissions, and some vehicles have special rules. An accountant can confirm what applies to you.
• Vans and commercial vehicles. Business contract hire is the usual route for vans, as they are mainly used for work.

Personal contract hire is for individuals who want a vehicle for private use. It is normally quoted including VAT, because a private customer cannot reclaim it. The rental is not a business expense, and the agreement is in your own name and assessed on your personal circumstances.

Which one applies? It usually depends on who the customer is and who the vehicle is for, not on personal preference. If a company or sole trader will be the hirer, business contract hire is the relevant product. If you are hiring privately in your own name, personal contract hire is. Some sole traders ask whether they can use either; the answer depends on the funder and on how the vehicle will be used, so it is worth asking us.

What to check

Before you sign anything, go through these points:

1. Who the hirer is. Make sure the agreement is in the right name: the business or you personally.
2. VAT. Check whether the quote includes or excludes VAT, so you compare like with like.
3. Mileage limit. Work out your realistic annual mileage. Going over the agreed limit usually leads to excess mileage charges.
4. Term and initial rental. Check the length of the agreement and how much is payable up front, if anything.
5. Maintenance. See whether servicing and maintenance are included or whether you arrange them yourself.
6. Condition on return. You are normally responsible for fair wear and tear standards. Damage beyond that can be charged.
7. Early termination. Contract hire is a fixed commitment. Ending early can be costly, so read the terms.
8. Insurance and tax. Check what you need to arrange yourself and what, if anything, is included.
9. Credit and status checks. The funder will assess the application. Acceptance is never certain and depends on the funder's checks.

Next step

If you are not sure which type suits you, tell us who the hirer would be and what the vehicle is for. We can then introduce you to funders for the right kind of agreement and explain the terms in plain English. You can also browse available cars and vans on the site and make an enquiry without any commitment.

Questions people ask

Can a sole trader take out business contract hire?

Often yes, as sole traders are business customers, but each funder sets its own criteria. They will usually ask about your trading history and may run credit checks.

Can I reclaim VAT on contract hire?

A VAT-registered business may be able to reclaim some or all of the VAT, depending on the vehicle and its use. Check with your accountant, as the rules differ for cars and vans.

Do I own the vehicle at the end?

No. Contract hire is a rental, so you return the vehicle at the end of the agreement. If you want to own a vehicle, a different finance product would be needed.

Is personal contract hire the same as personal contract purchase (PCP)?

No. Personal contract hire is a rental with no option to buy, whereas PCP is a form of finance that usually includes an optional final payment to keep the vehicle.