Contract Hire, sometimes referred to as an Operating Lease, is a long term rental agreement. Contracts range from 12 to 60 months and are tailored to the businesses requirements.
The Contract Hire Company reclaims the VAT on the original purchase, which reduces your monthly rentals (which are + VAT). Contract Hire is a very popular choice for VAT registered companies as they can claim back 50% of the VAT on the finance element for cars and generally 100% for commercials (subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme).
On contracts with maintenance the VAT on the service element is 100% recoverable. One of the major benefits is that there are no disposal worries as the future value is underwritten by the leasing company. Another benefit of Contract Hire is that it is generally 'off balance sheet funding' (subject to legislation change) which means it can improve your gearing ratio (assets to borrowing ratio) and therefore possibly your borrowing ability in the future.
A local business owner was looking to change his company car as he was paying over £700 a month benefit in kind and wanted to change his car to save him money. He had already tried a full electric car, which was apparent quite early on that it wasn’t for him because he was worried about the range. We explored the option of a plug-in hybrid which he was concerned about losing power as he is coming out of the high performance estate car.
However, this would give a very similar power output to his current car yet would save him personally £5,100 from his benefit in kind over the course of a year, this was a 3 year agreement. Also, because the company had funded the car using an ownership finance option (PCP), we managed to save the business over £4,000 a year as they couldn’t claim as much capital back because of the CO2 emissions.
The way we did this is explained below: Current car was purchased on PCP through the business and because of the high CO2 emissions they could only write off 6% reoccurring. We explored the plug-in hybrid, and as we could not get the 100 % first year allowances as the CO2 was slightly over the threshold. We then looked at contract hire where he could claim back 100% of the pre-VAT rental costs each month, which is where the savings were.
Auto Clubs International Ltd T/A Autoclub Car Leasing are a credit broker and not a lender, we are authorised and regulated by the Financial Conduct Authority. Registered No : 574462
Registered in England & Wales with company number : 05933252 | Data Protection No : Z253685X | VAT No : 983454877
Registered Office : 96 Castle Lane West, Bournemouth, England, BH9 3JU
Disclaimer: All vehicle images and descriptions are for illustration and reference purposes only, all vehicle leases are subject to credit approval and subject to change at any time. E&OE.
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