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Funding via Contract and Lease Hire versus Personal Contract Purchase


The contract lease hire business was estimated to be worth £16.9 billion in the UK in 2022, and demand grows yearly. 


Cash is no longer king, and it is estimated that 20-30% of all new cars registered in the UK in 2022 will be paid for using a form of lease.


At first glance, contract and lease hire and personal contract purchase (PCP for short) forms of sourcing a car may seem very similar. 


  1. Typically, there is a reduced deposit or advanced rental.
  2. Usually, you are committed to a set number of years or months.
  3. Traditionally, the monthly payments are significantly reduced compared to standard forms of hire purchase.


The attraction is plain to see: you get a new vehicle and have low payments and commitment; what is not to like?


There are, however, massive differences in terms of your liability and how, if you are sourcing the vehicle for a company or business, HMRC views the vehicle.


Potential Ownership 

  • PCP gives you the legal right to take ownership at the end of your contract. You may not wish to, but you do have the option if you want to exercise it. 
  • Lease or contract hire agreements have no option to own; the vehicle is collected at the end of the term.

Road Fund Licence 

  • Contract and lease hire agreements build the road fund licence cost within your monthly rentals. 
  • With a PCP, the charge is an additional extra you must budget for.


  • a PCP agreement allows you to take ownership at the end of the contract so you can benefit from any equity you build. e,g the optional final payment is £10,000. The car is worth £15,000; therefore, you have £5,000 equity.
  • Lease or contract hire agreements return any equity to the lease or contract hire company. You do not have the right to dispose of the vehicle and, therefore, benefit from any differences in market value.

Business and Company Taxation

  • PCP and lease or contract hire vehicles are viewed in totally different ways by HMRC. Some are classed as assets, and some as pure liability. Some appear on, and some show off your company's balance sheets. This is even more complicated when it comes to vans that are used for commercial purposes. Before you commit to any agreement, we request that you liaise with your company accountant, who will be able to discuss the different implications for your business and which way would be best in your company's circumstances.


  • Both PCP and lease or contract hire agreements base your monthly rentals on what they anticipate your mileage to be at the end of a set period with a set mileage. 
  • PCP agreements will only charge you excess mileage if you exercise your right to hand the car back. You still have the option to part exchange or buy it. Therefore, any additional mileage would affect your part exchange valuation and may not be an extra fee to budget for. 
  • Contract or lease agreements charge you a fixed excess mileage, which can often be stepped. For example, 0-10000 extra miles £0.75 - 10001- 20000 £1.25 etc. If your circumstances change mid-term and you do not renegotiate your contract, this can leave you with a substantial fee to pay. 


  • PCP agreements will only charge for damage to your vehicle if you use the option to hand your car back. If you choose to part exchange your vehicle, this will affect your part exchange valuation and, therefore, any potential equity to build during the agreement.
  • Contract and lease hire agreements will charge you an amount to repair any damage to the vehicle outside fair wear and tear. For example, a scratch on your alloy wheel over 50mm or scrap on your bumper. Etc. This can be a substantial amount. (please ask your lease or contract hire company for their wear and tear and hand back terms and conditions.)

Contract and Lease Hire or PCP, which way of sourcing a vehicle is best for you?

To summarise, both Personal Contract Purchase and Contract and Lease hire have benefits with sublet differences, which may not affect everyone; however, if you are sourcing a vehicle for a company or business, speak to your accountant before you commit to anything.