Vehicle Leasing and Contract Hire

Vehicle Finance Information

Contract Hire

• An operating lease in which the loss of value of the vehicle is guaranteed over a fixed term.

• Can either include or exclude a maintenance package.

Benefits

• Large VAT savings as the leasing company claims back the VAT when buying the vehicle.

• Tne payment covers most costs thereby providing better cash flow forecasting.

• Enjoy manufacturer bonuses and fleet purchase discounts where available.

• Freedom from disposal worries and risk as this is the job of the leasing company.

• Off balance sheet financing which is useful when your company has high borrowings elsewhere.

• No more administration and risk as maintenance, mechanical repair, replacement car, breakdown recovery, RFL renewal, tyres, batteries and exhausts can be part of the package.

Things you need to know

• It is a fixed contract to term and mileage but this can be changed by amending the rental.

• There will be a charge if you return the vehicle early.

• If you damage the vehicle, it needs repairing and it is your fault then this is not covered under the maintenance contract.

• Glass and windscreen replacement is not covered under the maintenance contract.

• Not all the rentals you pay can be offset against your company profits, as there is a sliding scale restriction on the allowances for more costly cars.

• 50% VAT recovery on the finance rentals you pay.

• If you return the vehicle in a damaged condition and it affects the resale value then you may be liable for the bill.

» Contract Hire FAQ

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Lease Purchase

• An agreement to buy a vehicle usually by installments over the term agreed with a final payment (balloon) being made to acquire the title to the vehicle.

• The balloon payment may be an estimation of the future resale value.
  Title does not pass until all payments have been made, but tax and accountancy treatment assumes you have title from day one.

Benefits

• Pure and simple purchase plan for a vehicle with flexibility by deferring part of the vehicle capital payment to the end.

• Is shown as a company asset on your balance sheet thereby attracting standard capital allowances and interest is usually offset against Corporation Tax liabilities.

• No VAT is payable on the repayments.

Things you need to know

• The outstanding debt must also be shown on the balance sheet.

• All vehicle running costs including the risks are yours.

• There will be a charge if you return the vehicle early.

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Hire Purchase

• An agreement to buy a vehicle usually by installments for the full amount over the term agreed.

• Title does not pass until all payments have been made, but tax and accountancy treatment assumes you have title from day one.

Benefits

• Pure and simple purchase plan for a vehicle.

• Is shown as a company asset on your balance sheet thereby attracting standard capital allowances and interest is usually offset against Corporation Tax liabilities.

• No VAT is payable on the repayments.

Things you need to know

• The outstanding debt must also be shown on the balance sheet.

• All vehicle running costs including the risks are yours.

• There will be a charge if you return the vehicle early.

• You may not enjoy manufacturer bonuses.

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Finance Leasing

• A lease covering only the finance element of the vehicle and where the lessor (finance company) does not guarantee the residual value.

• The lessee (you) will take the risk of the depreciation (loss of value) over the term.

• The vehicle must be shown on your company balance sheet.

Benefits

• Pure and simple financing agreement with a flexible rental structure to suit your needs, however you never own the vehicle.

• Taxation and VAT benefits the same as contract hire.

• Shown as a company asset on your balance sheet.

• You share in the risk and reward of the vehicle running costs including disposal.

Things you need to know

• There will be a charge if you return the vehicle early.

• Not all the rentals you pay can be offset against your company profits, as there is a sliding scale restriction on the allowances for more costly cars.

• All vehicle running costs including the risks are yours.

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Contract Purchase

• A purchase agreement (conditional sale) that includes a guaranteed resale value of the vehicle.

• Can include or exclude maintenance cover.

Benefits

• Can provide all the administration benefits of contract hire with the benefits of ownership.

• Fixed monthly payment provides better cash flow forecasting.

• Is shown as a company asset on your balance sheet thereby attracting standard capital allowances and interest can usually be offset against Corporation Tax liabilities.

• VAT is not applied to the finance part of the payment.

• Freedom from disposal worries and risk as this is the job of the leasing company if you opt to return the vehicle.

Things you need to know

• It is a fixed contract to term and mileage but these can be amended by changing the payment.

• There will be a charge if you return the vehicle.

• If you damage the vehicle, it needs repairing and it is your fault then this is not covered under the maintenance contract.

• Glass and windscreen replacement is not covered under the maintenance contract.

• Not all manufacturer bonuses apply to contract purchase.

• If you return the vehicle in a damaged condition and it affects the resale value then you may be liable for the bill.

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Castle Vehicle Leasing for open and professional advice at all times.