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Contract Hire

If your business is looking for a comprehensive, fixed cost motoring package where full usage of a new vehicle is important but ownership is not, then you should consider contract hire.

This is essentially an operating lease, which enables you to drive a new vehicle of your choice on a “fully inclusive” basis. Maintenance can be included as part of the contract, leaving you with only fuel and insurance to consider as extras. As you are hiring the vehicle as opposed to buying it, at the end of the contract you simply hand the vehicle back, leaving you with no disposal worries (subject to mileage and condition).

Contract Hire is also an extremely tax efficient method of funding a business vehicle, as rentals may be offset against taxable profits. For cars with a retail price of up to £12,000, full tax relief is available. However, where a car has a retail price in excess of this sum, tax relief is restricted in accordance with the following formula known as “half the excess rule” although full relief may be claimed on any maintenance element of the rental:

Disallowed percentage of rental = 1/2 (Vehicle cost - 12,000)*100/ Vehicle Cost

Additionally, if your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage, then only 50% of the VAT payable on the finance may be recovered.

Key Benefits

1. A low initial outlay, usually 3 months advanced rentals
2. Contracts available for periods of 1 to 4 years depending on the vehicle usage
3. rentals are pre-determined for the entire contract period
4. Known additional charge if the contract mileage is exceeded
5. Road Fund Licence is included with the contract
6. Full maintenance may be included as part of all contract hire agreements
7. As the vehicle is simply returned at the end of the contract, there are none of the problems or risks associated with disposal
8. If registered for VAT your business may reclaim all, or some of the VAT payable on the finance element of the rentals
9. This form of funding is considered to be “off balance sheet” and the vehicle will not be shown as an asset within the company’s balance sheet

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