What is Contract Hire and how can it benefit me and my business?
Contract Hire is a finance solution available to sole traders, partnerships and limited companies. It is a very popular choice for VAT registered companies, as they can claim 100% of the VAT back on a commercial vehicle, and it is very tax efficient. It provides a comprehensive, fixed-cost solution where use of a commercial vehicle is important but final ownership is not. Deposits are anything from one rental in advance.
Key benefits
Cash Flow - As your vehicle is not on your balance sheet, you don’t need to worry about cash flow, depreciation and negative equity.
Repayment period flexibility - you choose the finance period that’s right for you and your business (24 to 60 months).
Fixed monthly repayments - you enjoy set monthly rentals and can add a maintenance package for a small additional cost.
Low deposit - typically equivalent to 3 monthly rentals.
Tax advantages - monthly rentals are plus VAT which can be claimed back if you are VAT registered.
Tax relief - you can offset your new vehicle’s monthly repayments against taxable profits
Mileage Restrictions - Choose a mileage that’s right for you and your business—if you exceed your agreed limit you will simply be charged at the end of the term of your rental. The pence per mile excess charge will be clearly shown on your agreement.
Depreciation - You can drive your vehicle in the knowledge that any depreciation of the value of your van or pickup truck is the risk of your finance provider.
Final Points
Contract Hire is a great product, but before you settle on this method of payment, there are a few things you need to think about. Always ensure that you are as accurate as possible when estimating the mileage you are likely to do, when you enter into a Contract Hire Agreement. There will be an excess mileage charge if you go over your estimate, and it could end up costing you a lot of money. It is industry standard that Contract Hire brokers will advertise the best rates possible i.e. 10k miles per annum. If you know you are going to do more than this, it’s better to get it right at the beginning rather than face the risk of a large bill later. Another thing to be mindful of, is the condition that you expect the vehicle to be in when you return it to the contract hire provider at the end of the contract. Fair wear and tear is acceptable, but damage that requires attention by a body shop is not. If the vehicle is to be used for heavy construction, and likely to get the knocks and scrapes associated with those trades, it may be better to opt for Finance Lease or Lease Purchase as it will give you greater control at the end of the contract term.
About the Author:
Robert Dadzie is the business manager at Vanarama Manchester West. Vanarama Manchester West part of the Autorama Group, is a leading provider of commercial vehicle leasing in the Greater Manchester Region. For further information on leasing or to obtain a quote, please visit www.vanaramamanchesterwest.co.uk Alternatively you can contact Robert Dadzie on 0161 401 0541 or email
[email protected]
