# Contract hire vs finance lease

> Contract hire, finance lease, contract purchase and buying compared: who carries the residual value risk, the VAT and tax relief, and which suits you.

Source: https://fleetme.co.uk/guides/contract-hire-vs-finance-lease

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# Contract hire vs finance lease

By [the FleetMe team](https://fleetme.co.uk/about) · Updated 14 October 2026 · 11 min read

The short answer

**Contract hire is a fixed-term rental: you hand the vehicle back and carry no resale risk. A finance lease puts the vehicle’s end value on your business, lower monthly cost, but you settle up at the end.**

## The four ways a UK business can put a van on the road

## Contract hire vs finance lease vs contract purchase vs purchase

|  | Contract hire | Finance lease | Contract purchase | Outright purchase |
| --- | --- | --- | --- | --- |
| Who owns it | The lessor (FleetMe) | The lessor | You, at the end, if you pay the final sum | You, from day one |
| Residual value risk | The lessor | **Your business** | Lessor underwrites a fixed future value | Your business |
| End of term | Hand it back | Sell it and keep most of the proceeds, or extend on a nominal rental | Pay the final sum and keep it, or hand it back | Keep it or sell it yourself |
| Mileage limit | Yes, with excess charges | Usually none | Yes, affects the final value | None |
| VAT on a van | Reclaimed on each rental | Reclaimed on each rental | Reclaimed on the capital element | Reclaimed on the purchase price |
| Tax relief route | Rentals deducted as an expense | Depreciation and finance charge deducted | Capital allowances plus interest | Capital allowances |
| Maintenance | Optional, bundled and itemised | Usually your responsibility | Usually your responsibility | Yours |
| Best for | Predictable cost, no disposal admin, replacing every 3–4 years | Specialist or converted vehicles you may keep a long time | Wanting ownership with a value safety net | Cash-rich businesses keeping vehicles 8–10 years |

## Contract hire in detail: paying for use, not for an asset

## Finance lease in detail: you carry the end value

## Contract purchase and outright purchase

## Which should your business choose?

## The 2026 accounting change that narrows one traditional difference

## A note on tax and accounting advice

## Put a price on it

Tell us the vehicle, the term and the annual mileage you need and we come back with a written quote, and we aim to do that the same working day. Rentals are quoted ex VAT with the VAT-inclusive figure alongside, and your agreement is with FleetMe.

How many vehicles do you need?

Takes a minute. No obligation.

## Enquiry received, one step to go.

We can put a guide figure together from what you ve told us. To confirm the vehicle, the monthly rental and a delivery date **in writing**, we need your business details and the underwriting information.

Next step · about 5 minutes

Complete your business application

It s pre-filled from your answers. Nothing is committed until we confirm your quote and you sign.

No obligation · About 5 minutes

Prefer to leave it there? We ll still be in touch about your enquiry.

## FAQs

### What is the main difference between contract hire and a finance lease?

Who carries the vehicle’s end value. With contract hire you hand the vehicle back and the lessor takes the residual value risk. With a finance lease your business carries that risk, at the end you sell the vehicle and keep most of the proceeds, or extend on a nominal rental.

### Which is cheaper, contract hire or a finance lease?

A finance lease can show a lower monthly figure, particularly with a balloon, but it is not a like-for-like comparison because you are exposed to the vehicle’s value at the end. Contract hire prices that risk in and removes it. Compare total cost over the whole holding period, not the monthly.

### Can you claim capital allowances on a leased van?

No. With contract hire or a finance lease you do not own the vehicle, so you deduct the rentals, or, on a finance lease, depreciation and the finance charge, rather than claiming capital allowances. Capital allowances belong to whoever owns the asset.

### Is contract hire still off balance sheet?

Not for accounting periods beginning on or after 1 January 2026 under FRS 102. Amendments from the Financial Reporting Council bring most leases onto the lessee’s balance sheet as a right-of-use asset and lease liability. Leases of 12 months or less are exempt; vehicles are not low-value assets.

### Does a finance lease let me buy the van at the end?

Not directly, under a finance lease you never take title. You can normally sell the vehicle to a third party as the lessor’s agent and keep the large majority of the proceeds, or continue on a nominal secondary rental. To own the vehicle, contract purchase or outright purchase is the route.

### Which option is best for a van that will be converted or racked out?

A finance lease or purchase is often the better fit for a heavily converted vehicle, because you can keep it well past the primary period and there is no requirement to return it in standard condition. On contract hire, agree any conversion, racking or livery with us in writing before it is fitted.

## Next step

Business van leasing →

How the monthly rental is built, what is included, and who business contract hire is for.

Business van leasing eligibility →

The honest answer on who gets considered, and what we look at when we assess a business.

Or go straight to the range: [browse vans and pickups](https://fleetme.co.uk/vans) · [company cars](https://fleetme.co.uk/cars)

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