Whether you need to use commercial vans or cars for the everyday running of your business or you supply company cars as part of your benefits package to your employees, buying cars outright is very expensive and is actually not the most cost efficient way to do it.

Contract hire is the businessman’s simple solution to vehicle funding. It means that sole traders, limited companies and partnerships can acquire their vehicles without the financial risk of depreciation on what would normally be a large capital outlay. They can then concentrate on using their money where it’s most needed in the business.

What is contract hire?

Under contract hire, vehicles are leased to a business for a fixed monthly rate and for a set period of time, but the leasing company continues to own the vehicles.

How does contract hire work?

The monthly rental charged is calculated based upon the cost of the calculated depreciation on a vehicle over a set period of time, usually between 24 to 48 months and a prearranged mileage, plus a fixed interest charge for the lease of that vehicle. This is provided that the business user does not exceed the parameters of the contract, for example, excess mileage or damage to the vehicle above what is classified as reasonable wear and tear.

This means that instead of paying a hefty amount of money in one go for company cars or vans used as part of your business, you can significantly reduce your initial outlay – it usually works out to be about 3 months’ advanced rentals. You are also in a much better position to know what your total monthly outgoings will be because your monthly rental on your vehicles is fixed. This not only means you can forecast for the future, but you can use the capital that would have had to be spent on new vehicles for a more beneficial use within your company for optimum cash flow.

Contract hire further enables your company to save money because leasing companies can reclaim the VAT, which means the finance element of the vehicle lease is calculated on the price of the vehicle less the VAT. 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 formula known as “half the excess rule”, although full relief may be claimed on any maintenance element of the rental.

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.

UKVF is a privately owned vehicle finance and vehicle sourcing company. We have over 15 years’ experience in the industry. Whether you are a small or large fleet company, or even a private individual, we have the finance package for you. Call us now on 01257 267 036.