Business contract hire is an agreement which allows a company to hire a vehicle at a fixed rate for an agreed period of time. (As the name suggests, it is strictly for business’ only.)
The payment plan is an initial deposit followed either by 24, 36 or 48 monthly rentals in almost all cases. These payments do not work towards ownership. Once the contract expires, the vehicle must return to the owner.
Business Contract Hire Has Many Benefits For Business
Keep Track Of Your Costs
One of the biggest benefits to business contract hire is that a business can accurately forecast the cost of running a fleet. Unlike other means of supplying vehicles for a fleet, the true total cost is transparent. Fixed monthly payments over 3 years mean it is possible to budget effectively.
Depreciation Is Not A Concern
It’s incredibly difficult to know how much value a vehicle will lose after being on the road for three years. The vehicle industry is constantly evolving and there are lot of factors that can affect the value of a vehicle.
A business contract hire agreement leaves the weight of financial risk on the shoulders of the lessor. If the vehicle returns less valuable than initially predicted, it’s the lessor that suffers the loss.
Drive A New Or Nearly New Vehicle
With business contract hire, the total cost of the vehicle isn’t the figure that defines what you can afford. Vehicles are never more expensive than when they’re fresh out of the factory. However, new vehicles tend to hold their value much better.
The customers budget is defined by vehicles FRV’s (future residual values). This often puts new and nearly new vehicles within reach for companies…where perhaps they wouldn’t have been if purchased outright
Having a fleet of new and nearly new vehicles has a few benefits. Firstly, for a lengthy period of the contract the vehicle is likely to covered by manufacturer’s warranty and breakdown. Also, having a fleet of new vehicles sets a positive image for your business; it establishes a brand of success on the road.
You Can Claim Back 50% Of The VAT On The Finance Element
Business contract hire is exclusively a finance solution available to VAT registered sole traders, partnerships and limited companies. Therefore, these organisations can claim back 50% of the VAT on the finance element.
The leasing company retains ownership of the vehicle, so monthly payments can be offset against taxable profits. This reduces the amount of tax a business needs to pay.