leasing@autoclub.co.uk

Business Contract Hire

A simple and cost effective way to fund any number of vehicles

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.

Advantages:

  • Minimum capital expenditure
  • Accurate monthly budgeting
  • Improved cash flow
  • Fixed interest rates
  • Rentals can be offset against the businesses profits. Cars with a CO2 output above 110g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the businesses taxation, for contract-hired cars with a CO2 output of 110g/km or below, there is currently no disallowance.
  • Reduced administration
  • On-going advice and support
  • Road Fund Licence provided (vehicle excise duty paid) for duration of contract
  • Optional maintenance package
  • Optional breakdown rescue cover
  • Optional replacement vehicle cover in event of breakdown
  • Optional GAP insurance which provides cover for the shortfall between the outstanding finance and the insurance value if the vehicle is declared a write-off by your insurance company

Disadvantages:

  • Early termination can be expensive
  • If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
  • You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that stated in the 'Fair Wear and Tear Guide'
  • You must have fully comprehensive vehicle insurance
  • You will never own the vehicle as there is no option to buy it

More Information on Business Contract Hire:

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.

bik

What is benefit in kind?

  • Benefit-in-kind (or BIK) is a tax on employees who receive benefits or perks on top of their salary. If you have a company car for private use, you will have to pay a BIK contribution.
  • Every car has a BIK percentage banding based on the CO2 emissions, and a P11D value, which is the list price, including extras and VAT, but without the first year registration fee and vehicle tax.


Case Study

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.

This was just 1 car, imagine what this could look like for a large fleet customer?


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.

Copyright © 2021 Autoclub Car Leasing, All rights reserved.

Powered by CALAS