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Contract hire is a fixed-cost form of motoring. For a set monthly payment, you get the use of a vehicle for an agreed duration and mileage that suits your business. The fee takes into account the vehicle’s price when hired, its forecast mileage during the contract and its estimated residual value at the end. As long as you have not exceeded the mileage and the vehicle is in a fair condition, you just return it at the end of the contract, with no further cost. For an extra monthly fee, you can ask your contract hire company to take care of nearly every hassle associated with car ownership, whether it is maintenance, servicing, accident management or replacement vehicles.
2. No risk
Most vehicles will lose value from the moment they leave the showroom. In a contract hire deal, you return it to the leasing company at the end of the contract period, and they take the residual value risk. If you include things like maintenance and servicing, you are also protected from any unseen rise in these costs.
3. Free up capital
Leasing a vehicle instead of purchasing it means you are not tying up capital in a rapidly depreciating asset. You can invest the money that you are not paying upfront in growing your business or reducing debts.
4. Claiming VAT
100% vat is reclaimable on commercial vehicles. 100% vat on maintenance. 20% of the lease element vat is reclaimable on passenger cars when used 60% of the time for business purposes for a minimum of 2 years.
5. Off balance sheet funding
Vehicle leases do not have to be shown on a balance sheet, which will improve a company’s liquidity ratio, gearing and return on assets.
6. Purchasing power
While your business may have a fleet of ten, 50 or even a few hundred vehicles, leasing companies are used to buying thousands each year. They can negotiate great deals with manufacturers and pass the savings on to you in the form of a very competitive leasing rate.