Personal Contract Hire

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Personal Contract Hire is popular with individuals and employers who want to substitute a cash allowance for the traditional benefit of a company car, and in many ways this is a personal version of Contract Hire. It is also used as an alternative to buying by private individuals with no connection to business use. These contracts can be with, or without, maintenance and the standard version normally includes the first year's Vehicle Excise Duty, although one can specify a longer period. Prices quoted include VAT (of course, none is reclaimable) and consequently tend to look more expensive than Contract Hire. The agreement is with the private individual and not the business.

In a company car opt out scheme the employer relinquishes control over the image projected by the type and age of vehicles used by employees on company business. In principle, employees are entitled to choose any mode of transport they choose and can use all the cash allowance from their employer, a portion of it, or make their own contribution to obtain a more expensive vehicle than the allowance would otherwise allow. There are also debatable questions relating to liability if an accident should occur to an employee and/or vehicle or third party while on company business in a vehicle under this type of contract in an opt out scheme.

In deciding on the amount to be offered in such a scheme a number of considerations should be factored into the equation. The first thing to keep in mind is that any cash paid to an employee will be liable in full to income tax at that individual's personal tax rate and this will considerably reduce the amount available for that person to aquire a vehicle. Secondly, it is important to get an idea of the insurance costs involved for the user, remembering to specify at the outset whether or not business use is to be included in the policy, since an omission of that information could invalidate any claim later. Specifying use for business will almost certainly increase the cost. Lastly, the annual cost of fuel for business use and Graduated Vehicle Excise Duty (Road Tax) will also need to be fed into the equation. On the other side of the calculation, the cost of tax which an employee using a company vehicle would otherwise have paid on CO2 output as a benefit in kind tax (see our free downloadable NVC C02 Tax Calculator) can be offset against the above costs. Depending on the type of vehicle this could be a sizeable amount annually.

From the employers point of view there may be cost savings on administration and the reducing of liabilities on the business.