Contact Hire offers a trouble free way to run business vehicles.
The lender looks after all the administration including disposing of the car when your contact is complete. Monthly rentals are subject to VAT.
A maintenance option is also available and will normally cover routine maintenance, emergency assistance, road fund licence and provision of a relief vehicle in the event of a mechanical breakdown. Where maintenance is chosen, up to 100% of the VAT may be recoverable on the maintenance payments. Fixed monthly costs allow you to budget more accurately.
A Checklist of the Main Benefits
- Lower monthly rentals as the finance company reclaims the VAT on the car purchase, which will benefit your cashflow.
- Monthly rentals are fixed, making budgeting easier.
- You have no responsibility for the disposal of the car.
- A proportion of the rentals may be allowable against tax, reducing your tax liability. The percentage of rentals that can be claimed is dependent on the cash price of the car.
- You can have the option of a maintenance package for your car, thus avoiding any unexpected bills.
- Up to 100% of the VAT may be reclaimable on the optional car maintenance payment, which may be allowed against tax.
- You are not exposed to any depreciation risk on your car.
- Contract Hire is normally an off-balance sheet facility (as technically you are hiring it).
- Your initial capital outlay is reduced allowing your funds to be retained in the business.
The amount of the VAT on the payments that you will be able to reclaim will vary. If the vehicle is only used for business use then a maximum of 100% will be reclaimable, however if any private use is required the amount is reduced to 50%.
Leasing
Leasing is an option traditionally used by VAT registered businesses. With a Lease (unlike Contract Hire) you share in the profit or loss on the sale of your car at the end of the agreement. Finance Leasing has the same tax position as Contract Hire. A Finance Lease may or may not have a balloon final rental. At the end of the term you sell the vehicle (on behalf of the finance company) and will usually be rebated between 90-99% of the sale proceeds (less the final balloon rental if you have not yet paid it). If you do not wish to sell the vehicle at the end of the agreement you can continue to use it by entering the 'secondary rental period' which usually consists of small annual rentals about 1% (+ VAT) of the vehicles original price.
A Checklist of the Main Benefits
- A proportion of the rentals may be allowable against tax, reducing your tax liability. The percentage of rental that can be claimed is dependent on the cash price of the car
- Your initial capital outlay is reduced allowing your funds to be retained in the business.
- Monthly rentals are fixed, so budgeting is easy.
Explore other Finance options explained by CompuCars
For further details contact your chosen dealer.