A great advantage of car leasing is the potential to enable people to drive the cars they want, but can’t necessarily afford to buy outright. This alone makes it a very attractive purchasing method for many individuals and start-up businesses wanting to make a positive, professional impression by driving an executive vehicle. Contract hiring also allows people to easily change their cars more frequently than through traditional buying and selling. This means that as well as being able to upgrade as your circumstances or preferences change, it’s also possible to never drive a car that’s more than 3 years old so you can benefit from having the manufacturers warranty to cover maintenance costs and never have the inconvenience or expense of needing to take the car for an MOT.
Off Balance Sheet Funding
Under contract hire, your vehicles do not appear on your company’s balance sheet as they are owned by the contract hire company. The removal of capital assets from your balance sheet can enhance a company’s gearing (borrowing) ratio. Simultaneously, your business image can benefit from employee use of a high specification vehicle. If your business is in a strong financial position at the end of the lease period, you can choose to make the final payment for the outstanding amount of the guaranteed minimum future value determined at the start of the contract and add the vehicle to your assets at that time. If your company will be of more benefit without the ownership of the vehicle, you can return the vehicle and start a new contract on a replacement model of your choosing.
Fixed Monthly Cost
A fixed monthly payment is charged over the life of the contract and the initial up front payment is normally just three month’s rental. This payment is calculated by considering the cost of the vehicle, the anticipated mileage and it’s future value at the end of the hire period. Fixed monthly costs for the period of the contract makes budgeting much easier and you do not have the added worry of unexpected high payment demands. Additionally, more accurate budgeting improves your company’s cash flow allowing flexibility in other margins. Any extra mileage is paid at the conclusion of the lease period, rather than in additional monthly charges. By ensuring employees keep to the agreed mileage limit, there will be no top up fee needed at the end of the contract.
Contract hire has many VAT benefits that can be passed on directly to customers. As contract hire companies are able to claim back the VAT on the purchase price of any new car, once the vehicle is on the road, they can make a claim back of one hundred percent of the VAT on the servicing aspect of the rental price and fifty percent of the finance rental cost. This is a real bonus to businesses, in comparison to vehicles owned directly by the company, which are deemed assets.
Reducing Your Financial Risks
It is essential to manage the risks involved in running a vehicle fleet and by opting for contract hire you are able to do precisely that. Contract Hire enables you to simply pay the monthly fixed rental price and insure and fuel the vehicles. At the end of the lease period, a further lease can be taken out on new, replacement vehicles, reducing the likelihood of any being taken off the road for maintenance as would be ordinarily expected as they age and preventing the need to make good any wear and tear that would be expected with increased age and mileage of a vehicle. This ensures your fleet is always made up of top specification, high performing and excellent condition vehicles.
Contract Hire can be a sound financial decision for a business that requires use of a car or van and the flexibility to regularly change the motor vehicles in use, ensuring a professional image with high quality vehicles always representing the company. Contract Hire is the leasing of a vehicle to a business (usually VAT registered), for a fixed period of time with a pre-defined mileage at a fixed monthly rental. The price is based on the agreement length, estimated mileage and the value of the vehicle once the contract has been completed. Maintenance packages are sometimes included, however suitability will depend on your mileage and general usage of the vehicle.