THE UNIQUE BENEFITS OF CONTRACT HIRE
The Supplier Carries The Residual Price Risk
The second-hand vehicle market is a moveable and unpredictable feast. Why should companies risk their profits by gambling with an unknown vehicle sale price when they come to sell it in 2,3, or 4 years time?
All Contract Hire companies have a dedicated used vehicle disposal function that is expert at predicting and achieving the very best prices for used vehicles at the end of the contract. This allows for a reduction of monthly rentals that you have to pay, and also means that the hassle of selling the vehicle is removed, and any shortfall in the selling price is absorbed by the Contract Hire company.
The Supplier Carries The Maintenance Risk
Assuming a full maintenance option is taken, you need never worry about any unexpected servicing or maintenance costs upsetting your cash flow (and profits!).
Peace of mind that allows you to get on with running your business, rather than worrying about running your vehicles.
“Off Balance Sheet Funding” Why Is This A Benefit?
Contract Hire is the acquisition method that guarantees your vehicles will be off your balance sheet. This is advantageous because it reduces your asset or investment level. Therefore increasing your return on investment ratio (your profit is now a larger percentage of your asset value).
This will make your company look a better performer in the eyes of current and potential investors.
Major Vat Changes – Major Benefits For Contract Hire
Businesses can recover VAT payable on the purchase of cars only if they are wholly for business use. Remember that even a single mile of home-to-office travel means that a vehicle does not qualify for a recovery of VAT.
Contract Hire companies can recover all VAT payable on vehicles purchased, as they are purchased wholly for their business use. This saving in invoice cost is passed on in its entirety to the end user giving an immediate reduction in cost of 17.5% over and above any discounts negotiated with the Suppliers.
Approximately 60% of the VAT payable on the monthly rentals by the end user is recoverable. A tremendous advantage over outright purchase where none is recoverable.
Corporation Tax Allowances
Up to an invoice value of £12,000, 100% of the monthly rentals is allowable against any Corporation Tax due at the end of your financial year.
Over £12,000 the amount of allowance to a maximum of 74% at £25,000. This still represents a significant advantage over outright purchase where capital allowances are limited to £3,000 or 25% of the written-down value, whatever is the greater.
The VAT and Corporation Tax benefits together with the savings made on internal administration and costs incurred on disposal make Contract Hire the most tax efficient and cost effective method of acquiring vehicles for the business user.