What is contract hire?
Also known as car leasing, contract hire is a form of finance agreement whereby the customer hires the use of vehicles in return for regular payments.
The most popular type of vehicle leasing is contract hire, which is a form of operating lease. This allows the customer to hire a car or van for a set period of time and pre-determined mileage at fixed monthly rentals.
There is no option to purchase the vehicle and at the end of a contract hire agreement, it is returned to the leasing company. However, there may be an option for the driver to acquire the vehicle at market value.
Ownership remains with the leasing company, as does all the administration, vehicle tax, insurance and maintenance. Contracts typically range from 24-60 months, although short-term contract hire can be arranged.
Business contract hire agreements provides customers with a known, fixed cost to motoring, which helps improve cash flow as there is just one monthly payment to budget for. Additionally, for small to medium sized businesses, freeing up company capital that might otherwise have been spent on cars or vans is a big benefit. Also, vehicles are a depreciating asset that can prove expensive to run with little to no hope of return on investment.
There is also the added advantage of regular replacement cycles through a business contract hire agreement which can give a positive brand image to the customer’s business and help keep employees happy. If you are a VAT-registered business, the benefits of contract hire are even greater, as you can claim back 50% of the VAT paid on the finance element and 100% of the VAT on maintenance.
By adding a maintenance service contract, a vehicle acquired through contract hire also eliminates the stress and responsibility of vehicle maintenance. In addition, agreements can include access to courtesy cars or vehicles, ensuring that your workforce is always mobile. These services can be included in the contract or paid for as and when needed.
What are the benefits of contract hire?
• Fixed-cost motoring
• Frees up capital
• Steady cash flow
• 100% of VAT reclaimable where vehicle only used for business
• 50% of VAT claimable if private use allowed
• Rentals treated as an expense item
• Additional line of finance that may not affect banking arrangements
• Eliminates most of the stresses/financial risks of vehicle ownership
• Off balance sheet
Is a contract hire agreement right for your business?
If owning vehicles outright is not going to benefit your business, contract hire may be the vehicle leasing route that works for you. Anglo Scottish Asset Finance offers a wide range of business car finance options and will work with you to find the right fit for your company. Whether you are already familiar with car and van leasing, or are looking to try this for the first time, we are on hand to help.