What is Contract Hire?
Contract Hire is the most popular method of vehicle leasing for businesses. It is an efficient long term method for hiring a new vehicle without the initial outlay of purchasing or the hassle of trading once it’s time for an upgrade.
During the period of hire you do not own the vehicle at any point, you pay fixed monthly ‘rentals’ and if your company is VAT registered you can reclaim portions of the VAT back (more below). The fixed monthly payments are based on your chosen vehicle, your total mileage over the lease and the end value of the vehicle (Residual Value). The difference between the cost of the vehicle new and the residual value is what you will pay over the term of hire.
At the end of the contract the vehicle is simply collected and you can either choose a new one or just walk away.
Key points of Contract Hire
- Contract lengths range from 12 to 60 months
- Allows for accurate budgeting over the term of hire
- For some VAT registered businesses 50% of the finance rental VAT and 100% of the Maintenance Rental VAT is reclaimable for cars. For some vans 100% VAT can be recovered from maintenance and Finance Rental. In both cases ask your accountant if this applies to you
- The costs of maintenance, servicing and tyres over the period can be added on to your contract hire rentals
- Road Fund Licence is covered for the duration of the contract of hire
- Your vehicle is delivered to you and then collected from you at the end of the contract
- Appears off Balance Sheet
Things to consider with Contract Hire
- If you go over your contracted mileage you will be faced with charges
- Vehicles handed back with damage will incur a charge for repairs
- You do not own the vehicle for the duration of the contract