How Contract Hire Can Save Your Company Money

By: Shaun Parker

Contract Hire is a method of renting a vehicle for personal or business purposes. It differs from standard vehicle hire in that the vehicle is leased over a longer period. Contract Hire is offered on 12 to 48 month contracts but typically lasts 3 years.

With Contract Hire a finance company supplies the vehicle and takes full responsibility for its depreciation, funding costs and administration. The finance company calculate a monthly rental price and usually demand a deposit of three months of the monthly rental value.

The lessor can request a contract that includes maintenance this only leaves insurance and fuel to be considered. The fixed pre-determined stream of rental payments makes it easy for the lesor to calculate their monthly outgoings.

Contract Hire is becoming increasingly popular in the UK. This is mostly due to the tendancy for company funded vehicles. It is particularly popular with businesses because it allows for accurate monthly budgeting, minimal running costs and the lesee does not have to suffer value depreciation they would experience if they bought a vehicle.

This method of hire also allows a business to update its vehicles regularly. This can be beneficial for maintaining the status of a company or, if being used as a company car, be a popular perk for its employees. Of course these benefits also apply to people using Contract Hire to hire a vehicle for personal use.

Contract Hire can appeal to a business as it is an extremely tax efficient method of funding a business vehicle. Full tax relief is available on cars worth up to 12,000 GBP. If your business is registered for VAT 100 percent of the VAT payable on the finance element of the rentals may be recovered.

If the vehicle is being used for personal use then only 50 percent if the VAT payable on the finance element of the rentals may be recovered. The fact that rentals may be offset against taxable profits make it a very popular option for a business. It can help improve the cash flow and tax position of your business.

Indeed 40 percent of V.A.T Registered companies choose this funding method. The UK industry is considered the largest best managed in the world. The industry representative body BVRLA (British Vehicle Rental and Leasing Association) has nearly 2 million vehicles in its management.

The industry has seen steady growth since the first statistics were published in 1990. More than 50 companies now offer this type of supply. Fleet statistics are reviewed and published annually by EMAP.

Additional benefits of Contract Hire include; minimal capital expenditure (you do not have to pay for the vehicle) reduced administration (administration is minimal) and no disposal worries (when the agreement ends the vehicle remains the property of the lessor and never becomes property of the lesee). Contract Hire is available to Individuals, Sole Traders, Partnerships and Ltd Companies.

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