Contract Hire is the ideal financing method for VAT registered companies looking benefit from tax effective funding and fixed cost motoring.
The finance provider remains in ownership of the vehicle at all times during the contract period with maintenance packages also being available. This therefore makes the lender responsible for any potential risks in running the vehicle such as repair costs and potential uncertain residual values.
Contract Hire has a fixed monthly rental charge worked out by the cost of the car being financed, the desired contract period and the estimated annual mileage. The rental charge is also affected by the predicted resale values and if included in the agreement, the servicing and maintenance costs.
At the end of the contract hire finance agreement the customer has 2 choices. The customer has the choice to return the vehicle without paying any further costs subject to the agreed annual mileage not being exceeded and the vehicle not being damaged. The other option would be to keep the vehicle on a new contract hire agreement for a further period. This is likely to be at a reduced monthly rental premium.
VAT is charged on all contract hire agreements, however 50% of this is recoverable on the finance costs of the vehicle and the full amount of VAT is recoverable on the maintenance and service costs if taken up with the agreement.
Contract Hire is also beneficial for companies as vehicles on contract hire aren’t recorded on balance sheets as an asset. This can improve performance ratios when looking at asset returns.
Advantages of Contract Hire:
- Customer is not responsible for depreciating costs of the vehicle therefore meaning fixed cost motoring without risks
- We have lenders that can supply a wide range of vehicles for contract hire
- Initial deposits are usually relatively low, even for new or nearly new vehicles therefore releasing capital for other needs
- Contract Hire agreements can include maintenance and service packages
- Can make expensive models and vehicles affordable
Disadvantages of Contract Hire:
- Maximum mileage restrictions with additional charges if this limit is exceeded.