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 ), 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 is popular
with individuals and employers who want to substitute
a cash allowance for the traditional benefit of a company
car....
- Contract Purchase is mostly suitable
for businesses where reclaiming VAT is not required....
- If you wish to keep vehicles
as a business asset....
- This type of agreement
is available to private individuals....
- 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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