Contract hire can prove to be an exceptionally attractive solution to your business vehicle needs. With the possibility of tax savings, as well as none of the risk associated with depreciation, it's definitely worth considering. Furthermore, each of our franchises custom designs their business finance products to suite their product, so why not take a look at the relevant individual pages on each of our franchise sites.
Contract hire is a fixed-cost form of motoring. For a set monthly payment, you get the use of a vehicle for an agreed duration and mileage that suits your business. The fee takes into account the vehicle’s price when hired, its forecast mileage during the contract and its estimated residual value at the end. As long as you have not exceeded the mileage and the vehicle is in a fair condition, you just return it at the end of the contract, with no further cost. For an extra monthly fee, you can ask your contract hire company to take care of nearly every hassle associated with car ownership, whether it is maintenance, servicing or replacement vehicles.
Most vehicles will lose value from the moment they leave the showroom. In a contract hire deal, you return it to the leasing company at the end of the contract period, and they take the residual value risk. If you include things like maintenance and servicing, you are also protected from any unseen rise in these costs.
Leasing a vehicle instead of purchasing it means you are not tying up capital in a rapidly depreciating asset. You can invest the money that you are not paying upfront in growing your business or reducing debts.
VAT is 100% reclaimable on the cost of a vehicle when it is solely used for business, regardless of whether you buy it or contract hire it. However, the situation is different if a vehicle is also used privately. While a contract hire customer can still reclaim 50% of the VAT charged on the finance cost of such a vehicle, the purchase can reclaim zero VAT. Another benefit is the fact that the leasing company that owns the contract hire vehicle can reclaim the VAT on it (because they are solely using it for business) and pass this on in the form of a reduced rental rate.
While your business may have a fleet of ten, 50 or even a few hundred vehicles, leasing companies are used to buying thousands each year. They can negotiate great deals with manufacturers and pass the savings on to you in the form of a very competitive leasing rate.
Vehicle leases do not have to be shown on a balance sheet, which will improve a company's liquidity ratio, gearing and return on assets.