All information is provided only as a guide.
We cannot be held responsible for any changes in legislation.


CONTRACT HIRE

Contract Hire is a straightforward way to finance a vehicle on a fixed budget, without gambling on its residual value.

You simply decide:

1. The length of time you’d like to keep the vehicle

2. The mileage you expect to cover

3. Whether or not you would like the vehicle’s maintenance (optional) to be included in your monthly payment

Contract Hire usually involves a low initial outlay, so a new vehicle doesn’t create too much of an impact on your cash flow. You never have any cash tied up in the equity of your vehicles, so, if you’re moving over to a Contract Hire, vehicles that you already own or have on traditional Hire Purchase schemes, will have their equity value released when you change over. This should create a one-off positive impact on your cash flow.

• The title of the vehicle remains with hiring company, so your vehicle will not appear on your balance sheet.

• Fixed maintenance costs and protection from depreciation – the largest unknown cost of running any vehicle.

• Flexibility that suits you – you choose the deposit and the contract term.

• Tax-efficient – reclaim all the VAT on rental payments and fixed maintenance payments on commercial vehicles. However, only half the VAT is reclaimable on the rental proportion of car payments. In certain cases, you may be able to reclaim 100% of the VAT on a rental e.g.: dedicated pool car, or where you can prove to the VAT man that the car was used solely for business use (almost impossible to do!) Double-cab pick-up trucks are currently classed as commercial vehicles for both VAT and company car tax purposes provided that they have a payload capacity in excess of 1000kgs.

• 100% can be offset against your taxable profit liability on commercial vehicles. However, with cars, the tax efficiency is as follows: 100% for up to £12,000, thereafter a sliding scale is introduced i.e.: 90% at £15,000 and 80% at £20,000.

• You can choose from any new car or VAT-qualifying used car and any commercial vehicle.

• If you choose to take up the maintenance option on a Contract Hire plan, all servicing will be included at the manufacturer’s recommended intervals as well as all replacement tyres and exhausts. The road fund licence is included for both maintenance and non-maintenance options.

• Maintenance options can also include repairs, punctures, replacement vehicle and motor organisation cover.

• Should you find your circumstances alter your anticipated mileage, your monthly payments can be adjusted to avoid excess mileage charges.

Disadvantages

1. You must be very careful in anticipating your annual mileage. If you do too many you will face penalties of 5p – 50p per additional mile (an average price being 7p), subject to the agreement and the vehicle. If you do too few, you will not get refund. Some over-mileage penalties are charges annually, most at the end of the agreement.

2. If you decide to change the vehicle someway through the agreement, be prepared to pay heavy costs up to the total pay-back of the agreement at full-term.

3. Commercial vehicle users who are likely to inflict substantial damage to their vehicles should be aware that most Contract Hire companies are likely to recharge the customer for damage beyond normal wear and tear.

In Our Opinion

On the whole, if you choose a standard specification and avoid the above pitfalls, Contract Hire can give you great peace of mind. With most new cars having a 3-year warranty and low cost servicing, you can work out the cost of running the same car on a non-maintenance lease agreement to within a few hundred pounds. It’s worth doing the comparison every time, especially given the reduced price of vehicles and the forecast stability in resale value and depreciation.

Please note, Eurovans has compiled this information simply to assist you in choosing the most suitable funding option. We cannot make the decision for you.
If you are unsure, you should take the advice of your financial adviser, or, in the
case of business customers, it is essential that you consult with your accountant.