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Business Contract Hire

A simple and cost effective way to fund any number of vehicles

Contract hire is a popular funding option to finance fleets of all shapes and sizes. You lease the vehicles required from your lease provider for a fixed monthly rental over a fixed term, usually 2-5 years and for an agreed contractual mileage. At the end of the term you return the vehicles and providing there is no excess mileage or damage to the vehicles there is nothing further to pay. You can also include a maintenance contract over the same period, paying a fixed monthly amount to cover servicing, tyre replacement, maintenance and repair costs.
Funding by contract hire means you are not exposed to losses on resale as the residual value risk sits with the lease provider. Therefore your costs are fixed over the contract term (subject to excess mileage and end of contract damage charges) allowing you to budget effectively. All you need to decide is the length of the contract and expected mileage and we will look after the rest.

Advantages:

  • Minimum capital expenditure
  • Accurate monthly budgeting
  • Improved cash flow
  • Fixed interest rates
  • Rentals can be offset against the businesses profits. Cars with a CO2 output above 130g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the businesses taxation, for contract-hired cars with a CO2 output of 130g/km or below, there is currently no disallowance.
  • On-going advice and support
  • No residual value or maintenance risk
  • Road Fund Licence provided (vehicle excise duty paid) for duration of contract
  • Optional maintenance package
  • Optional breakdown rescue cover
  • Optional replacement vehicle cover in event of breakdown
  • Optional GAP insurance which provides cover for the shortfall between the outstanding finance and the insurance value if the vehicle is declared a write-off by your insurance company

Disadvantages:

  • Early termination can be expensive
  • If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
  • You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that stated in the 'Fair Wear and Tear Guide'
  • You must have fully comprehensive vehicle insurance
  • You will never own the vehicle as there is no option to buy it

More Information on Business Contract Hire:

  • Your vehicles remain a business expense, but never appear on your balance sheet*
  • Enjoy fixed monthly payments due to the VAT advantages of leasing You can obtain 50% VAT recovery on finance costs in relation to company cars (subject to your VAT recovery rate)
  • Operational costs are more predictable, so you can manage your fleet effectively
  • You can add ancillary services such as vehicle maintenance, fleet administration, or duty of care
  • You don’t need to worry about having to sell vehicles yourself
  • Your cashflow is freed up for you to use elsewhere in your business
  • There are cost implications if you terminate your funding agreement early (although this applies to all forms of funding but may not be so transparent)
  • Excess mileage charges may apply

The Contract Hire Company reclaims the VAT on the original purchase, which reduces your monthly rentals (which are + VAT). Contract Hire is a very popular choice for VAT registered companies as they can claim back 50% of the VAT on the finance element for cars and generally 100% for commercials (subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme).

On contracts with maintenance the VAT on the service element is 100% recoverable. One of the major benefits is that there are no disposal worries as the future value is underwritten by the leasing company. Another benefit of Contract Hire is that it is generally 'off balance sheet funding' (subject to legislation change) which means it can improve your gearing ratio (assets to borrowing ratio) and therefore possibly your borrowing ability in the future.

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