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Contract Hire or Personal Contract Hire?

May 22, 2008
Contract Hire is for companies and Personal Contract Hire is for individuals, there are however circumstances where it is not at all clear as to which route a company director, sole proprietor, or partner should take when acquiring a new car. Certainly if a business is not Vat registered one of the advantages of taking a vehicle on Contract Hire has been excluded. This is because a company can normally reclaim 50% of the Vat on the monthly rental, and if maintenance has been added, 100% of the Vat on the cost of maintenance.

Another factor is the value of the vehicle and Co2 emissions of the vehicle. Co2 emissions are an important consideration in respect of the tax you will pay, if you are acquiring the vehicle for company use. It is not a factor if the vehicle is for Personal Contract Hire, except of course from an environmental point of view.

If you are uncertain which route may suit you and the company best with regard to taxation, you could ask your accountant to carry out an exercise taking into account all the various factors, so you can see what the bottom line is in each case. However what is far more likely to decide the route you eventually take is convenience.

It is so often the case that paying for a vehicle or for that matter anything through the company is so much more comfortable, than paying out of one's pocket, regardless of the tax benefits one way or the other. Company directors tend to spend much more freely on the company credit card, then they would ever consider doing with their own card and indeed why not; there are so many disadvantages in owning and running a business nowadays that having a nice car through the business and "entertaining clients" on the company credit card, goes some way to compensate for some of the stresses and strains that company owners encounter on a daily basis.

Another factor that needs to be taken into account when making a decision, are the various rates available on the particular vehicle you are considering. It is not unusual to see a Contract Hire rate that is a lot less expensive than the same vehicle is available through Personal Contract Hire.

There will always be a difference because Contract Hire rates are quoted as + Vat, for example 200 British Pounds per month +Vat and if the same rate were available on Personal Contract Hire it would be 235 British Pounds inclusive of Vat. However the same rate is not always available to both, because some companies that have very competitive Contract Hire rates do not offer Personal Contract Hire. You could therefore have the additional cost of arranging it through another lender, and in addition the Vat cost to consider.

If you do ask your accountant to compare the two methods, it will be helpful to give him an indication of your anticipated mileage per annum. This is because when using your own vehicle for company use you can claim 40 pence per mile for the first 10,000 miles and 25 pence thereafter, so it could be an important factor in the calculation. You may find that Personal Contract Hire is the most efficient but decide you prefer the convenience of putting it through the company and arrange it on Contract Hire anyway. If it creates an extra tax burden you could let the company pay that as well by awarding yourself an extra dividend to cover the cost.
About the Author
For more information about contract hire, lease purchase, finance lease or vehicle hire purchase in the UK please contact Bowater Price plc 01494 536 536.
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