Contract hire, a type of operating lease normally associated with vehicles is very popular with VAT registered businesses. This type of lease is designed to minimise the risks of vehicle usage by reducing initial outlay and maximising cost control. Contract hire offers a complete solution from initial vehicle sourcing, financing and management through to final vehicle disposal.
Leasing payments are fixed for an agreed contract period and level of mileage and vehicles can be leased with or without maintenance cover. The vehicle remains the property of the lessor and is returned at the end of the contract. Business contract hire is available to sole traders, partnerships and limited companies.
The Main Advantages of Contract Hire:
- Improved cash flow as initial outlay is very low compared to vehicle purchase value
- Fixed monthly rentals which help with accurate budgeting
- Capital Budgets are protected which allows working capital to be more productively invested
- No depreciation risks as the responsibility for disposal of the vehicle remains with the leasing company
- Rentals are allowable against taxable income, subject to the "half the excess rule" partial disallowance
- VAT is recoverable. The amount recoverable is subject to whether the vehicle is available for private use or business use only
- Optional covers include vehicle maintenance, breakdown rescue, GAP insurance, and replacement vehicle cover in the event of breakdown
- Off balance sheet funding. Vehicle leases do not have to be shown on your Balance Sheet which will improve your liquidity ratio, gearing and return on assets