What is Contract Hire?

Contract hire is a form of vehicle leasing for businesses. It allows businesses to hire a car for a set period, usually no less than a year, paying a set monthly fee based on the length of the contract and the agreed maximum mileage that will be clocked up during that period. In some cases, the basic fee covers service and maintenance, but this may be an additional cost depending on the terms offered by the leasing provider. Breakdown cover can also be included in the contract if necessary.

Throughout the contract, the vehicle remains the property of the supplier, and it is returned to them when the contract term finishes. Contract hire is used by large companies to lease entire vehicle fleets and by small and medium enterprises to lease individual vehicles.

What are the Advantages of Contract Hire?

There are a number of benefits for businesses that choose to lease vehicles on a contract hire basis. Some of the key advantages are outlined below:

• No significant capital needed – leasing a vehicle means there is no large initial outlay, and allows you to avoid tying up money in an asset that will lose its value.
• Monthly cost is fixed – whether you’re leasing a vehicle for 12 months or 4 years, the monthly payment is agreed in advance, which helps your financial planning. As long as your vehicle is returned in good condition, and the agreed mileage is not exceeded, you won’t incur any additional costs at the end of the contract.
• Competitive rates – thanks to their relationships with manufacturers and the scale at which they operate, leasing companies and brokers are able to offer highly competitive rates to business customers. Contract hire costs less than half as much as an equivalent bank loan or hire purchase arrangement.
• Tax and VAT savings – if the vehicle is for business and personal use, 50% of the VAT can be claimed back. If it’s for business use only, 100% can be reclaimed. Businesses can also offset the monthly payment against taxable profits, reducing the overall amount of tax they pay.

What are the Disadvantages of Contract Hire?

There really aren’t many disadvantages associated with contract hire for most businesses. However, it’s important that you’re aware of the following:

• Mileage isn’t flexible – as outlined above, the mileage that will be covered by the vehicle is agreed when the contract starts. If this isn’t adhered to, additional charges will be incurred.
• Contract length isn’t flexible – if you decide you no longer need the vehicle before the contract has finished, you’ll have to pay an early cancellation fee.

If you still have questions about business contract hire, Click Here and they’ll be happy to help.