Contract hire is a popular choice for vehicle leasing for most VAT registered businesses.
Contact hire - at a glance
• Recover VAT on payments
• Improve cash flow
• Pay a fixed interest rate
• Offset rentals against taxable income
• No vehicle depreciation worries
• No vehicle disposal issues or costs
• Easier internal administration
• Automatic road licence renewal
• Breakdown and recovery service
• Replacement vehicle (optional)
• Can amend or extend contract during agreement if required
• Off balance sheet funding
How contract hire works
Contract hire requires a minimum cash outlay, usually equal to 3 monthly rental payments in advance, followed by equal monthly payments that are subject to VAT at the prevailing rate. Agreements are usually between 24 and 48 months.
Benefits of contract hire
Control over vehicle running costs
Contract hire offers maximum control of the total cost of running a vehicle, especially when opting for a maintenance package that covers the manufacturers recommended routine services, maintenance and repair, tyres, batteries, exhausts and the road fund licence renewal for the duration of the agreement.
There is also an extra cost option for a relief vehicle if the contract vehicle is off the road for any length of time.
In a contract hire agreement you pay regular fixed monthly rental payments that cover all risks such as capital acquisition, cost of depreciation, road fund licence, roadside assistance and final disposal. It all adds up to reduced internal administration and businesses are able to plan their motoring and fleet costs more accurately.
VAT is recoverable on lease payments
One of the main financial benefits to VAT registered businesses of all sizes is the ability to recover VAT on leasing costs:
• 50% of VAT is recoverable on the finance element of the monthly rentals whilst,
• 100% of VAT is recoverable on commercial vehicles
• 100% of VAT is recoverable on the maintenance element
