Contract Hire Car Leasing - Definition

A type of operating lease & the most popular for businesses in the UK

Suitable for most businesses, almost half of the UK fleet market uses this option. Contract Hire is available for new or used vehicles, the latter up to a maximum of 12 months old. Technically this is a type of Operating Lease.

Many businesses find that regular fixed monthly rentals help with budgeting, cash flow and forecasting, and it leaves your capital free for other purposes. Fleet management services can be offered, thus reducing your administration time and costs. VAT registered businesses can claim 50% of the VAT element on the monthly rental and 100% of the VAT on any maintenance charges included. In the case of vans, if a VAT registered business can show that the vehicle is never used for private mileage, up to 100% of the VAT on the rental element can be reclaimed in addition to the all VAT on maintenance charges (for VAT registered businesses only). Up to 100% of the net rental can be claimed against taxable profits, but it is advisable to consult your accountant to determine what proportion, if any, will be deducted for private mileage.

Contract Hire is often referred to as 'off books' because the vehicle does not appear on your balance sheet, there is no risk involved in having to anticipate depreciation costs as this is calculated by the finance company in determining the monthly rental. This also helps with forecasting tax liability. For businesses with larger fleets there are economies of scale to be had.

This type of contract includes Road Fund License for the duration of the contract and manufacturer's warranties and benefits apply. No ownership is involved and there is a minimum initial outlay (usually 3 rentals). Quotations from Newlease are given exclusive of VAT. Contracts are for a fixed period of time (usually between 24 and 60 months) for a fixed rental which is based on the value of the vehicle, the annual mileage and the residual value (the higher the mileage the lower the residual value and therefore the higher the monthly rental). There is a pence per mile surcharge on any mileage in excess of that agreed for the overall duration of the contract, so it is important to be as accurate as possible in estimating your annual mileage (for multiple vehicles it is sometimes possible to pool the mileage). Contract Hire can include maintenance to cover servicing and other costs if you wish. Naturally, these are more expensive and many people prefer to cover this cost themselves with local servicing facilities. The vehicle is returned at the end of the contract.

If you are supplying vehicles to employees it is well worth while keeping in mind that the user will pay a benefit in kind tax based on the CO2 output of the vehicle (see our downloadable CO2 Calculator), the P11D value plus any extras, and the rate of tax that the employee pays. The purpose of the legislation behind these regulations is to encourage everyone to drive cars with lower CO2 emissions. The greener, the better.

Follow the links below to see explanations of different vehicle contracts:

Contract Hire - Suitable for most businesses, almost half of the UK fleet market uses this option....

Personal Contract Hire - Personal Contract Hire is popular with individuals and employers who want to substitute a cash allowance for the traditional benefit of a company car....

Contract Purchase - Contract Purchase is mostly suitable for businesses where reclaiming VAT is not required....

Lease Purchase/Hire Purchase - If you wish to keep vehicles as a business asset....

Personal Lease Purchase/ Hire Purchase - This type of agreement is available to private individuals....

Finance Lease - An alternative to Contract Hire where the hirer has the option of paying back the capital cost of the vehicle over a longer period....

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Car Leasing & Contract Hire prices for business are quoted net of VAT. Personal Car Leasing & Personal Contract Hire prices are inclusive of VAT. Lease rentals shown are based on 10,000 miles per annum, with an initital payment of 3 monthly rentals, without maintenance, inclusive of GVED (Road Tax) throughout the contract. Pictures shown may differ slightly from offer models. Please make sure you check all quotations carefully and ensure you have clearly written terms before entering into any vehicle contract. Our staff will always give you impartial advice.

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