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Why lease?

Guides

Does your business STILL purchase its company vehicles outright???

Yes?

Have you asked yourself why so many other companies have switched to leasing as an alternative? You could be losing out! Of the various forms of vehicle leasing, Contract Hire is the most common and widely recognised.

But what exactly is contract hire?

Effectively, it is a rental agreement for a fixed period - a bit like normal daily, or weekly, car hire; but usually contract hire is for between two and three years. Monthly payments are fixed, collected by direct debit, and at the end of the agreement the vehicle is merely handed back.

Is it right for our business?

Finding out whether it is better for a business to contract hire or purchase outright can be an involved exercise. This is because the decision affects a number of areas - including accounting, reporting, cashflow and tax. Professional advice from your accountant/ tax adviser(s) should always be sought when making the final decision, because individual circumstances can have a significant bearing on what might turn out to be the best option.

What are the benefits of contract hire?

Contract hire has grown in popularity because:

  • With the option of including such extras as maintenance, provision of relief vehicle, etc within the monthly payment - the costs of using the vehicle are known in advance, and there are no uncertainties. Good for forecasting cashflow.
  • These uncertainties extend to the residual value of the vehicle at the end of its expected use in the business. The risks attached to vehicle depreciation are passed to the finance company. So, if a new model range of the vehicle were to be introduced part way through the agreement, the extra loss in value of the old model is not suffered by you, the client.
  • With the vehicle simply being returned at the end of the contract, there is not the hassle of selling it.
  • Contract hire agreements avoid the need for large upfront payments (or balloon/ balancing payments at the end), as usually only the equivalent of three months' rentals is required at the outset.
  • Tax relief is available on contract hire payments in the same period as the payments are made - unlike capital allowances on cars that are purchased outright.
  • 50% of VAT charged on car rentals is recoverable, whereas no VAT is recoverable on the purchase of cars. (VAT is recoverable in full on commercial vehicles, both rented and purchased)


If you are interested in having one of our account managers contact you to discuss your requirements, then please fill in an enquiry form and submit:

>> Business enquiry form

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