- What is Contract Hire?
- What is the procedure
to acquire a vehicle?
- Who owns the vehicle?
- How much cash is required
up front?
- Who carries the burden
of depreciation on the vehicle?
- Who insures the vehicle?
- Who orders the vehicle?
- What about vehicle delivery
and collection?
- Is the vehicle cost
on or off the company balance sheet?
- Can the monthly payments
be offset in full against Corporation Tax?
- Are there any VAT advantages
to Contract Hire?
- Who pays the ongoing
maintenance costs?
- Can I terminate of
the contract hire agreement early?
- What options are available
at the end of the agreement?
- Is there anything to
pay at the end of the agreement?
- What other types of
contracts could I consider?
What is Contract Hire?
Contract Hire is the businessman's simple solution
for vehicle funding. This is in the form of a lease/hire,
for cars or commercial vans and is available to all
types of businesses. Contract hire enables Sole traders,
Partnerships and Ltd Companies to acquire their vehicles
without the financial risk of depreciation on what
would normally be a large capital outlay. This form
of hire therefore allows the release of tied up capital
for more beneficial use within the company creating
the optimum cash flow. For a more comprehensive view
into what is contract hire? Please click here. Contract
Hire
What is the procedure to
acquire a vehicle?
Simple
step by step vehicle acquisition
|
5
easy steps
|
Subject
to
|
Request
a quotation
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If
the quote meets your approval
|
Complete
a proposal form
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Application
for credit approved
|
Complete
a vehicle order form and return it with your
initial payment
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On
receipt of your official order & deposit
we order your vehicle
|
Complete
and return contract hire agreement document
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We
let you know the vehicle registration as soon
as we have confirmation from our supplier so
you can arrange your vehicle insurance
|
We
arrange for you to take delivery of your vehicle.
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Your
vehicle is delivered free of charge to any destination
of your choice in the mainland UK
|
Who owns the vehicle?
The finance supplier owns the vehicle during the contract
period. We can offer you a purchase price to buy the
vehicle from us as a third party after the contract
terminates.
How much cash is required
up front?
Minimum outlay (usually equivalent to three monthly
rentals) improves cash flow (Six months may be required
for a new-start business).
Who carries the burden of
depreciation on the vehicle?
The finance supplier owns the vehicle and therefore
they take the risk and responsibility for any loss
incurred relating to the residual on the value of vehicle.
Who insures the vehicle?
The customer / user must insure the vehicle with a
fully comprehensive business policy making sure all
their specific uses for the vehicle are covered.
Who orders the vehicle?
We undertake to source your vehicle from our contacts
in the industry at full fleet discount, including any
specific promotions/support available at the time.
Should you have a local, preferred supplier, we would
be happy to order the vehicle from them on your behalf
assuming they could comply with our fleet discount.
What about vehicle delivery
and collection?
We arrange free delivery and collection anywhere in
the mainland UK.
Is the vehicle cost on or
off the company balance sheet?
Contract Hire guarantees that vehicles will be off
the balance sheet. This has the following advantages:
Reduces capital outlay
Reduces company investment level, thereby increasing
return on investment ratio this will make the company
look a stronger performer in the eyes of investors,
including, of course, the banks.
Can the monthly payments
be offset in full against Corporation Tax?
Yes. 100% of the monthly rentals may be offset against
Corporation Tax for cars up to £12,000.For cars
costing over pound £12,000 a percentage of the
extra cost is allowed. A simple calculation shown below
can be used to find exactly how much is allowable.
This calculation is commonly known as the "Half
the difference rule".
12,000 + 1/2 (Cost-12,000) x 100%Cost
For example, if a vehicle costs £15,000, this
is how the calculation works.
12,000 + 1/2 (15,000-12,000) x 100%
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=
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90%
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15,000
|
|
|
| |
|
|
Firstly take 12,000 from 15,000 (cost)
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=
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3,000
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Divide this by 2 (to find half)
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=
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1,500
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Add this to 12,000
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=
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13,500
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Divide this by 15,000 (cost)
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=
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0.9
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Times this by 100 to find the percent
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=
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90%
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Tax allowance chart
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Cost of Car
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=
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%
of Rental allowable
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£
|
|
%
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12,000
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=
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100
|
13,000
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=
|
96.15
|
14,000
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=
|
92.85
|
15,000
|
=
|
90.00
|
16,000
|
=
|
87.50
|
17,000
|
=
|
85.29
|
18,000
|
=
|
83.33
|
19,000
|
=
|
81.57
|
20,000
|
=
|
80.00
|
21,000
|
=
|
78.57
|
22,000
|
=
|
77.27
|
23,000
|
=
|
76.08
|
24,000
|
=
|
75.00
|
25,000
|
=
|
74.00
|
26,000
|
=
|
73.07
|
27,000
|
=
|
72.22
|
28,000
|
=
|
71.42
|
29,000
|
=
|
70.68
|
30,000
|
=
|
70.00
|
35,000
|
=
|
67.14
|
40,000
|
=
|
65.00
|
45,000
|
=
|
63.33
|
50,000
|
=
|
62.00
|
55,000
|
=
|
60.90
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60,000
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=
|
60.00
|
Commercial vehicles are not affected by this rule
and the rentals are allowable in full irrespective
of the cost of the vehicle. In the case of Contract
Hire agreements with full maintenance the maintenance
costs of the rental for cars & commercials can
be offset against tax as a separate item.
Are there any VAT advantages
to Contract Hire?
Yes! If your business is VAT registered you can also
claim back up to 50% of the VAT charged on the finance
of the vehicle and up to 100% the VAT charged on the
maintenance –applicable when the vehicle is for business
and private use. For vans/commercial vehicles used
solely for business purposes the hirer may claim 100%
of the VAT on both the finance and the maintenance.
Who pays the ongoing maintenance
costs?
If a non-maintenance contract is chosen, the customer
is responsible for all routine servicing and maintenance
costs under the terms of the agreement. However, the
payment for the annual road fund licence is covered
for the full contract period. When a full maintenance
package is taken all servicing or maintenance costs
are inclusive allowing the customer more time to run
their business, rather than worrying about the running
of vehicles.
Can I terminate of the
contract hire agreement early?
Yes, however, contract hire is a fixed term agreement
intended for a specific time-span and can therefore
carry some penalty if terminated prematurely.
What options are available
at the end of the agreement?
1. Hand the vehicle back and replace it with a new
one.
2. Extend the contract for a further six-months, or
12 months, usually at a reduced rate.
3. Ask for a purchase price to buy the vehicle as
an individual through us as a third party (The Company
cannot purchase the vehicle due to the tax advantages
that have already been enjoyed.)
Is there anything to pay
at the end of the agreement?
Charges are made only if the vehicle has done more
miles than originally contracted to do. This is the
excess pence per mile charge (ppm), which will be written
on the contract and will vary from vehicle to vehicle.
To avoid this charge we encourage customers to advise
us during the contract if they feel that more or fewer
miles than originally expected are likely to be done
and we will amend the contract accordingly provided
there are still 6 monthly payments to go before the
agreement is due to terminate .The only other charge
would be if the vehicle had been damaged and not repaired.
What other types of contracts
could I consider?
To see quick view comparisons Click here Car
Finance Taxation Issues
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