Contract Hire
Contract Hire is a perfect product for companies and private individuals who want to take the hassle and financial risk out of running their own car(s) or van(s). In addition to the obvious benefits to all users of this type of fixed cost no-hassle agreement, there are other features which may appeal to you if you are a business.
The key benefits of Contract Hire to business users are:
Off Balance Sheet Funding
- With a Contract Hire agreement the vehicle does not appear on your company’s balance sheet as it is not owned by you. The vehicle is owned by the finance company therefore it is removing the capital asset from your balance sheet and can improve your company’s borrowing ratio.
Fixed Monthly Cost
- If you take out a Contract Hire agreement, your company agrees to pay a fixed monthly payment for the duration of the contract. The advantage of a fixed cost means your company is able to budget more effectively as there are no hidden costs. This can further be enhanced by taking out a maintenance contract as all your servicing costs will be included in the monthly rental.
VAT Benefits
- If you are a VAT registered business you can then claim back 100% of the VAT on the servicing element of the rental cost and 50% of the VAT on the finance rental. Only if you are using the car for 100% business use e.g. you are a car rental company, can all the VAT be reclaimed on the finance rental. With a van however, typically 100% of the VAT is reclaimed on all elements as this is usually accepted as 100% for business.
Reducing Your Financial Risks
- As the vehicle does not belong to your company there are no financial risks associated with how much the car is depreciating and what it will be worth when you come to sell it You have peace of mind that you are in a fixed cost contract that you can budget for.
Reducing Administrative Burden
- Contract Hire means that an administrator will only be needed to get a quote and ensure the relevant paperwork is sorted at the beginning of the contract. If maintenance is included in the contract the driver can simply call a number to arrange any maintenance themselves so there are no garage bills to administer and pay.
Am I A Business or Private User
- A business user may be described as any trading concern whether a limited company, partnership or sole trader who can offset the acquisition and running costs of a vehicle (or a proportion thereof) through the business accounts.
