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So What Is Contract Hire and What Are The Benefits?

Nov 9, 2007
Under a Contract Hire agreement the lease company will always retain ownership of the vehicle(s), the customer is simply the vehicle 'Hirer'

Benefits of Contract Hire

Fixed cost motoring - with Contract Hire the payments are fixed from the outset of the Contract and are not subject to interest rate fluctuations, this enables the customer to budget effectively, if a maintenance package is taken this also ensures you are protected by any costly and unexpected servicing bills.

Cash Flow - Contract hire improves your cash flow thorough low initial payments

Vehicle Maintenance - If you want a completely hassle free way to run your company vehicle(s) for an additional monthly cost you can opt to bolt on a Full Maintenance package to your Contract Hire agreement, this ensures the vehicle will benefit from all routine servicing and replacement tyres, exhaust and batteries.

VAT reclaimable - VAT is reclaimed by the funder on the purchase price of the vehicle, the benefits of this are passed onto the customer.
Once the vehicle has been delivered and providing your company is VAT registered you can start to reclaim 50% of the VAT on the finance element of the monthly payments and should you of opted for a maintenance package you will be eligible to reclaim 100% of the VAT on the Maintenance element.

Off Balance Sheet Funding - Contract hire is what we call an Operating Lease this basically means the vehicle doesn't depreciate on the company's balance sheet. Monthly payments are viewed as an expense in the P&L account

Fleet Management - No matter how small or large your fleet of vehicles is, with Contract Hire we will manage your vehicles, ensuring the mileage is tracked to advise you if any of your vehicles are going over the permitted mileage set out at the beginning of the Contract Hire agreement, we will also call you three to four months before the end of the contract ensuring a smooth change over into a replacement vehicle and generally manage the administration of your Contract Hired fleet.

Road Tax - With Contract Hire you will receive Road tax for the duration of the vehicle's contract, this will automatically be sent out to you when your old disc expires.

No Depreciation Risk - As the Contract Hire company is the registered owner of the vehicle they take all the residual value risk, if the used car market crashes it's not your problem! You just simply hand the vehicle back at the end of the term.

Release Capital - Contract Hire enables you to set up funding away from your normal sources leaving important cash lines available for other areas of your business

Corporation Tax - With Business Contract Hire 100% of the monthly payments can be offset against corporation tax, for Vehicles over 12,000 GBP a proportion is disallowed, the following calculation must be followed to ascertain the amount and is commonly known as the 'Half the Difference Rule'

All makes & models - You can choose absolutely any vehicle make or model to go on a Contract Hire agreement, you can also choose to fund your light commercial vehicle this way.
About the Author
Shaun Parker is an expert on contract hire and vehicle / car leasing.
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