Business Contract Purchase (BCP) offers a flexible way to finance company vehicles while keeping ownership optional. Discover how it works, its tax benefits, and how to find the best deal.
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Choosing the right vehicle finance option for your business takes a lot of consideration – you want to balance cost with flexibility while also considering your long-term plans. Business Contract Purchase (BCP) is a popular choice, offering a structured way to acquire vehicles which keeps your options open at the end of the agreement.
Whether you're aiming for a petrol, diesel, or electric vehicle, BCP gives you a tax-efficient way to manage fleet costs. In this guide, we’ll explain how BCP works, its costs and tax implications, and how it compares to other financing options.
A Business Contract Purchase is a vehicle financing arrangement that lets you buy vehicles through fixed monthly payments over an agreed term, with the option to purchase the vehicle at the end of the contract by making a final balloon payment.
The main advantage of this structure is that it helps you manage cash flow while retaining the option to own the vehicle outright eventually.
BCP is handy if you want to incorporate electric vehicles (EVs) into your fleet. EVs are still, on average, more expensive than petrol or diesel vehicles, so BCP is a viable way to manage the costs.
To ensure BCP is right for your business, you need to understand the structure of a BCP financing arrangement. Here's a breakdown of its components:
At the outset, you pay an initial deposit (which is typically higher than that required for leasing agreements). This upfront payment reduces the amount financed and, as a result, the monthly payments.
Following the deposit, you make fixed monthly payments over the contract term. These payments are calculated based on the vehicle's price, the contract duration, and the anticipated residual value (the balloon payment).
At the end of the agreement, you have the option to make a final payment (this will be much larger than your monthly payments) to take ownership of the vehicle. Alternatively, you can return the vehicle to the finance provider, subject to any return conditions.
While there are some similarities between BCP and other common vehicle financing methods, it’s important to note the distinctions.
While similar in structure, BCP offers advantages such as VAT reclaim opportunities (more on this later) and a focus on eventual ownership, which may not be as prominent in PCP agreements.
Unlike contract hire or leasing, which typically doesn't provide an ownership option, BCP allows businesses the flexibility to own the vehicle at the end of the term. This can be beneficial for companies that prefer to have assets on their balance sheets.
A Business Contract Purchase (BCP) involves several costs, including an initial deposit, fixed monthly payments, and a final balloon payment if you choose to buy the vehicle. Additional expenses may include mileage excess charges, servicing or maintenance packages, and VAT considerations, depending on business use.
When considering a BCP, you’ll have to account for various costs and factor them into your budgeting:
Additional costs to be mindful of include:
BCP can be a tax-efficient way for you to finance vehicles, offering several advantages that reduce overall costs. The areas you need to know about are capital allowances, VAT treatment, and corporation tax deductions.
BCP agreements offer flexibility both during and at the end of the contract:
When evaluating BCP against other financing methods, consider the following:
We’re amid a big push by the government towards sustainable transportation. As such, there are various incentives available for electric and low-emission vehicles:
Manufacturers like Tesla and BMW offer BCP deals on their electric models, which makes the transition to greener fleets less financially onerous.
To secure the best BCP deals, consider the following tips:
Managing upfront costs, balloon payments, or cash flow fluctuations during the term can be challenging. That’s where a flexible financial arrangement (like iwoca’s Flexi-Loan) can help.
The Flexi-Loan operates like a credit card. You’ll get a credit limit and you can use the money as you see fit. Used alongside BCP, it can make acquiring a vehicle or vehicles even more manageable.
BCP helps you balance cash flow management with the potential for vehicle ownership. By understanding its structure, associated costs, and tax implications, you can make informed decisions that align with your company's financial goals.
In addition, financial solutions like iwoca’s Flexi-Loan can further support your business in managing your vehicle financing needs sustainably.
Want to buy a company car or expand your fleet of vehicles? Find out how an iwoca Flexi-Loan can help.
Yes, VAT applies to the purchase price of the vehicle in a BCP agreement. However, if the vehicle is used exclusively for business purposes, your company may be able to reclaim the VAT, resulting in cost savings.
