Until a few years ago, vehicle leasing and contract hire were very much restricted to the corporate and business world.

The consumer – including the small business owner wanting to run a private car for occasional business use – had fewer options open to them. Unless there was spare cash in the bank.

The only real alternatives for small businesses were: a bank loan; or hire purchase from a franchised dealership – requiring a large deposit.

Thankfully, those days are well behind us. Leasing companies have adapted their offerings to include Personal Contract Purchase (PCP). And, more recently, Personal Contract Hire (PCH). PCH now caters for the majority of personal leasing agreements.

Now the consumer and small business owner have choice. And PCH agreements are available from a wide range of different sources: banks; car dealerships; leasing companies; and leasing brokers.

So what’s the difference?

Personal Contract Hire (PCH)

A Personal Contract Hire is, in many cases, exactly the same agreement as business contract hire – but the agreement is in the name of the individual and includes VAT.

The vehicle is taken on for a fixed period of time (usually two to five years), and at the end of the primary term, the vehicle is returned to the leasing company – just as you might with a company car.

Personal Contract Purchase (PCP)

A Personal Contract Purchase is essentially an adaption of a traditional hire purchase with balloon agreement. It is more geared towards individuals wishing to buy the car at the end of the term for an amount which is guaranteed at the start of the contract.

However, a PCP gives the best of both worlds with the added flexibility of being able to hand the vehicle back to the leasing company with no further payments being made.

Key points of interest

No company car tax – because the car is privately funded there is no taxable benefit

Road Tax is usually included for the full duration of the contract with a PCH, and for at least 12 months with a PCP (although check the terms with your provider)

Fixed Cost Servicing and Tyres plus a wide range of additional products and services are available, providing complete peace of mind. In fact – there are now many providers who offer these products on a ‘standalone’ basis – so shop around

Individuals are able to access deals only available to leasing companies with exceptional discounts – although some deals are not available on a PCP type agreement

Low Initial Payments required (typically three months), and monthly payments are fixed for the duration of agreement (regardless of interest rate changes) allowing accurate budgeting

Both agreements are ideal for those wishing to opt out of a company car scheme, and are in receipt of a cash allowance…

…Or a small business owner wanting to run a private car with occasional business use reimbursed through Approved Mileage Allowance Payments (AMAPs): 40p for the first 10,000 miles; 25p thereafter

Further information

• Paul Bulloch is the managing director of BVRLA-approved car leasing broker Concept Vehicle Leasing
• For more on Approved Mileage Allowance Payments (AMAPs), read our Law & Tax article here
• For more on company car tax, go to our Law & Tax article here