Business Vehicle Finance UK 2026: Fund Cars, Vans and Commercial Vehicles

What is business vehicle finance?

Business vehicle finance is asset finance applied to vehicles used for business purposes. It covers a wide range from sole-trader vans and company cars to large HGV fleets and specialist commercial vehicles. Rather than purchasing vehicles outright, the business spreads the cost over the vehicle's working life through fixed monthly payments, preserving working capital for operational needs.

The business vehicle finance market in the UK is one of the largest categories of asset finance by volume. UK Finance statistics show commercial vehicles and cars account for over £15 billion per year of new asset finance business. Vehicles are a core asset class for virtually every sector of the UK economy, from sole-trader trades businesses running a single van to national logistics operators financing fleets of hundreds of HGVs.

Business vehicle finance is available from bank lenders, specialist non-bank lenders, manufacturer finance programmes and dealer finance. The right product and lender depends on the vehicle type, the fleet size, the business's tax position and whether the priority is ownership, flexibility or lower monthly cost.

Types of business vehicle finance

Hire purchase for business vehicles

Hire purchase is widely used for commercial vehicles including vans, HGVs and specialist vehicles where the business intends to keep the vehicle long term. Fixed monthly payments over 24 to 60 months, capital allowances from day one and ownership transfer at term end make hire purchase straightforward for businesses that want to own their vehicles outright. Under hire purchase, the business is treated as the owner for capital allowances purposes from the date the vehicle enters use.

For cars, hire purchase is less tax-efficient than for commercial vehicles because car capital allowances are restricted based on CO2 emissions. Cars with CO2 emissions above 50g/km fall into the special rate pool at 6 percent WDA per year rather than the main rate 18 percent pool. Zero-emission cars qualify for 100 percent first year allowances. The Annual Investment Allowance does not apply to cars. These restrictions make operating lease often more tax-efficient than hire purchase for company cars.

Finance lease for business vehicles

Finance lease is used for vehicles where the business wants to use the asset for its full life without requiring ownership. Rentals are fixed and fully deductible as a business expense. For cars, 50 percent of the finance lease rental is disallowed for tax purposes if the car has CO2 emissions above 50g/km; 100 percent is deductible for vans, HGVs and zero-emission cars. This distinction makes finance lease more tax-efficient than hire purchase for high-emission company cars in many scenarios.

Business contract hire

Business contract hire (BCH) is an operating lease product where the lender takes the residual value risk at the end of the primary term. The business agrees a fixed term and mileage, pays fixed monthly rentals and returns the vehicle at the end. The lender prices the residual value into the monthly rental, so BCH payments are typically the lowest of any finance product for the same vehicle and term.

BCH is the dominant product for company car fleets because it eliminates residual value risk, provides predictable costs and allows simple fleet replacement at term end. Maintenance packages can be added to BCH agreements, covering servicing, tyres and MOTs for a fixed additional monthly cost. Novuna Business Finance operates one of the largest BCH networks in the UK through its fleet of dealer and broker partners.

Under IFRS 16, BCH leases above 12 months must be recognised on the balance sheet for companies reporting under IFRS. For smaller businesses using FRS 102, the accounting treatment depends on whether the lease meets the finance lease criteria under the old standard.

HGV and commercial fleet finance

HGV and large commercial vehicle finance follows the same product structure as other asset finance but with some specific considerations. HGVs, artics, rigids and trailers are hard assets with active secondary markets and predictable depreciation, making them straightforward to underwrite. Terms of 36 to 60 months are standard; refrigerated and specialist vehicles may attract shorter terms due to higher depreciation risk.

Fleet finance for 10 or more vehicles is typically arranged under a master facility agreement with individual drawdowns per vehicle, rather than separate agreements for each unit. This simplifies administration, provides a single lender relationship and may give volume pricing advantages. Shawbrook Bank and Close Brothers Asset Finance both offer fleet facility structures for larger commercial vehicle operators.

Tax treatment of business vehicle finance

The tax treatment of business vehicle finance is more complex than other asset classes due to the distinction between cars and commercial vehicles, and the CO2 emissions-based capital allowances regime for cars.

Vans, HGVs, pick-ups and other commercial vehicles are treated as plant and machinery for capital allowances purposes. Under hire purchase, the Annual Investment Allowance allows the full cost to be deducted from taxable profits in year one. Writing Down Allowances at 18 percent per year apply to the main rate pool for expenditure above the AIA limit. Finance lease and operating lease rentals on commercial vehicles are 100 percent deductible as a business expense.

Cars are subject to CO2 emissions-based capital allowances restrictions. Zero-emission cars qualify for 100 percent first year allowances under hire purchase. Cars with CO2 emissions of 1 to 50g/km fall into the main rate pool at 18 percent WDA. Cars with CO2 above 50g/km fall into the special rate pool at 6 percent WDA. The AIA does not apply to cars. For finance lease and contract hire on cars, 50 percent of the rental is disallowed for tax if CO2 exceeds 50g/km.

Benefit in Kind (BIK) tax applies to company cars provided to employees for private use. The BIK rate is based on the car's CO2 emissions and list price, creating a tax cost for the employee that should be factored into fleet cost analysis. Vans have a flat-rate BIK of £3,960 per year for 2026/27 where any private use is permitted. Zero-emission vans have a £0 BIK rate. HMRC's Employment Income Manual at EIM23000 covers company car and van benefits.

Lenders for business vehicle finance

Novuna Business Finance (formerly Hitachi Capital Equipment Finance) operates one of the UK's largest business vehicle finance and contract hire networks, serving both SMEs and large fleet operators through dealer and broker channels. Business contract hire, finance lease and hire purchase are all available across cars, vans and light commercial vehicles.

Shawbrook Bank finances commercial vehicles and HGVs from £25,000 to £5,000,000 as a direct bank lender. Close Brothers Asset Finance has a dedicated transport division covering HGVs, trailers and specialist haulage vehicles. Aldermore Bank covers business vehicles from £5,000 with published indicative rates. Portman Asset Finance covers commercial vehicles from £5,000 with same-day decisions.

Time Finance offers business vehicle finance alongside invoice finance, which suits transport and logistics businesses that need both asset finance and invoice discounting under one lending relationship.

For a full comparison with FRN numbers, loan ranges and KT Scores, see: Asset Finance UK: The Independent Guide.

Frequently asked questions

What is the difference between business contract hire and finance lease for a company car?

Business contract hire (BCH) is an operating lease where the lender takes the residual value risk at the end of the primary term. The business pays fixed monthly rentals for an agreed term and mileage and returns the car at the end. Finance lease keeps the residual value risk with the lessee; the business can continue on a secondary lease or arrange the car's sale and receive most of the proceeds. BCH gives lower monthly payments but no option to own or profit from the residual value. Finance lease is more suitable where the business wants flexibility over the car's disposal.

Is hire purchase tax-efficient for company cars?

Hire purchase is generally not the most tax-efficient structure for high-emission company cars. Capital allowances on cars are restricted by CO2 emissions: cars above 50g/km only qualify for 6 percent writing down allowance per year, meaning it takes many years to obtain full tax relief on the purchase cost. Finance lease and contract hire allow the rental to be deducted as a business expense more quickly, though 50 percent of the rental is disallowed for cars above 50g/km. Zero-emission cars on hire purchase qualify for 100 percent first year allowances and are tax-efficient under hire purchase.

Can I finance a single van on business vehicle finance?

Yes. Business vehicle finance is available for a single van from £5,000 upwards at most specialist lenders. Aldermore Bank, Portman Asset Finance, Time Finance and Nucleus Commercial Finance all offer single-vehicle facilities. For a sole trader or micro-business needing one van, hire purchase over 24 to 48 months is the most common and straightforward structure. The van is a commercial vehicle so 100 percent of the lease rental or full capital allowances are available on hire purchase.

What happens if I exceed the mileage on a business contract hire agreement?

Excess mileage charges apply at the end of a BCH agreement if the vehicle has covered more miles than agreed. Excess mileage rates are set out in the BCH agreement and are typically charged per mile above the contracted total. To avoid excess mileage charges, businesses should accurately estimate annual mileage at the outset and increase the contracted mileage if usage grows during the agreement. Some BCH providers allow mid-term mileage amendments.

Can I finance electric vehicles for my business?

Yes. Electric vehicles are eligible for all forms of business vehicle finance including hire purchase, finance lease and business contract hire. Zero-emission cars financed on hire purchase qualify for 100 percent first year capital allowances. Zero-emission vans have a £0 BIK rate. Business contract hire is popular for electric company car fleets because it eliminates the residual value risk associated with rapidly evolving battery technology. Some lenders have specific electric vehicle finance products with terms aligned to battery technology cycles.