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If your business is looking for a comprehensive, fixed cost motoring package where full usage of a new vehicle is important but ownership isn't, then you should consider contract hire.
This is essentially an operating lease, which enables you to drive the new vehicle of your choice on a "fully inclusive" basis. Maintenance can be included as part of the contract, leaving you with only fuel and insurance to consider as extras. And, as you are hiring the vehicle as opposed to buying it, at the end of the contract you simply hand it back, leaving you no disposal worries (subject to condition & mileage).
Contract Hire is also an extremely tax efficient method of funding a business vehicle, as the rentals may be offset against your taxable profits. For cars having a retail price of up to £12000, full tax relief is available on the rentals. Where a car has a retail price in excess of this sum, tax relief is restricted in accordance with the following formula although full relief may be claimed on any maintenance element of the rental:
| £12000 + | ½ (cost of vehicle - £12000) | x lease rentals |
| cost of vehicle |
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. Where the vehicle is a car used for business and private mileage, then only 50% if the VAT payable on the finance element of the rentals may be recovered.
Key Benefits
- A low initial outlay, usually of 3 months advance rentals
- Contracts are available for periods of 1 to 4 years, depending on the vehicles usage
- Monthly rentals are pre-determined for the entire contract period
- Known additional charge if the contract mileage is exceeded
- Road Fund Licence and Roadside assistance are included as standard with all the contracts
- Full maintenance may be included as part of all contract hire agreements
- As the vehicle is simply returned upon the contracts expiry, there are none of the problems or risks associated with disposal
- Rentals may be offset against taxable profits, improving the cash flow and tax position of your business
- If registered for VAT your business may reclaim all, or some of the VAT payable on the finance element of the rentals
- This form of funding is considered to be 'off balance sheet' and the vehicle will not be shown as an asset within your balance sheet
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