Why is contract hire so popular?

Contract Hire is designed for business`s who wish to provide company cars, originaly it was called an operating lease, and Mercedes still call it this.

Contract Hire or also know now as Lease Hire and has been so successful, and will continue to be so because, of the fixed cost to motoring and the tax savings.

So is Contract Hire or Lease Hire right for your business? Here are some guidance notes which will help you, ask yourself

* Is the vehicle going to be paid for by the business?
* Is the business VAT registered?
* Would you prefer not to have the responsibility of disposal?

If the answer to the above is YES then Contract Hire may be for you.

Contract Hire is for businesses; simply the company rents the vehicle for a period of 1 year to 4 years (up to 5 years for a van).

Main Features

VAT registered businesses can off set 50% of the VAT on a car (100% on vans) on the rentals against their VAT return. This offers significant savings, which normally cannot be had for cars.

100% of the rental can be offset against tax on a van. However, for cars, 100% of cost of the rental can be off set against corporation tax for cars emitting upto 160 g/km CO². For cars emitting 161 g/km CO² or more there will be a flat rate 15% restriction.

Road tax is generally included in the cost of the contract for the whole term saving time once a year renewing the tax disc.

There are no disposal risks at the end of the agreement, as long as you keep within the contract mileage and look after the vehicle while in your care. This will save you time as you are not responsible for the resale, and therefore eliminating any concerns over outstanding finance.

Some finance houses will allow you to buy the vehicle at the end of the contract, the value would be agreed at the end of the contract and would generally be in line with market value.

OSV tip: “Caution should be taken if you decide to purchase your car at the end of the agreement. Professional advice should be taken”

The finance commitments are “off balance sheet” therefore the liability of the finance is not shown on the company accounts, which may be a benefit.

why is contract hire so popular
Andrew Kirkley
Latest posts by Andrew Kirkley (see all)
  • 31st October 2010

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