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What is Contract Hire?
Contract Hire is a finance method designed for maximum benefit for
VAT-registered customers. It is designed to make motoring worry
free, tax efficient and risk free.
What contract duration and mileage allowances
do you offer?
We offer contract duration from 12 to 60 months on all of our quality
used and pre-registered vehicles and 18 to 60 months for all new
vehicles. Total mileage allowance is 160,000 miles. This includes
any mileage that may already be on our used vehicles.
Who owns the vehicle?
The finance supplier owns the vehicle during the contract period.
The customer can own the vehicle as a third party after the contract
terminates.
Who insures the vehicle?
As the customer is the keeper of the vehicle, insurance is the customer's
responsibility. Lease Ease can quote low-cost motor insurance
for business users.
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Who carries the residual value risk?
The finance supplier. The finance company calculates a residual
value at the time of quoting. If at the end of the contract the
vehicle is worth less than originally expected, the financier is
responsible for the loss. The second-hand car market is very unpredictable.
Why should companies risk their profits by gambling with an unknown
vehicle sale price when they come to sell in two, three or four
years' time? The suppliers have dedicated used vehicle disposal
functions that are expert at predicting and achieving the very best
prices for their vehicles at the end of the contract.
Who carries the ongoing maintenance costs?
If a non-maintenance contract is chosen, the customer is responsible
for all routine servicing and maintenance costs. Assuming a maintenance
option is taken, the customer need never worry about any unexpected
servicing or maintenance costs upsetting cashflow (and profits!).
A blown bulb, a blown tyre or a blown clutch is only a freephone
call away from a speedy, no-cost repair. Peace of mind that allows
the customer to get on with running their business, rather than
worrying about the running of vehicles.
What is Non-Maintenance Contract Hire?
A Non-Maintenance Contract is a contract where the customer is responsible
for maintaining and servicing the vehicle as recommended by the
vehicle manufacturer. The supplier does however supply the road
fund licence for the full contract period.
What is Full-Maintenance Contract Hire?
A Full-Maintenance Contract is a contract where the supplier is
responsible for maintaining and servicing the vehicle and includes
all costs due to fair wear and tear. Additional facilities may be
added to a Full-Maintenance contract such as RAC cover and relief
vehicle cover.
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Is the vehicle cost on or off the company balance
sheet?
Off balance sheet. Contract Hire is the acquisition method that
guarantees the vehicles will be off the balance sheet. This has
the following advantages: * Gives an effective cash injection or
opens another credit line. Perhaps allows the customer to repay
a loan or reduce an expensive overdraft. * Reduces the company's
assets or investment level, therefore increasing the return on investment
ratio (the profit is now a larger percentage of the asset value).
This will make the company look a better performer in the eyes of
current and potential investors, including, of course, the banks.
Typically how much cash is required up front?
Typically a deposit of three monthly instalments is required. Six
months may be required for a new-start business.
Who arranges vehicle collection and delivery?
We arrange both delivery and collection anywhere in the mainland
UK.
Does the customer own the vehicle at the end
of the contract?
No! The customer doesn't own the vehicle at the end of the contract.
Is this a disadvantage? We don't think so! If you do own the vehicle
at the end of the contract, it means that you have to go through
the inconvenience of disposing of it and arranging finance for your
next vehicle. At Lease Ease, we come and collect your old
vehicle whilst delivering your new vehicle. Nothing could be easier.
If a third party wishes to purchase your old vehicle this can also
be arranged.
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Can the monthly payments be offset in full
against Corporation Tax?
Yes. 100% of the monthly rentals may be offset against Corporation
Tax. For vehicles costing over £12,000 a proportion is disallowed.
To find exactly how much is allowable a simple calculation must
be followed. This calculation is commonly known as the "Half the
difference rule".
12,000 + 1/2 (Cost-12,000) x 100%
Cost
Example 1 If a vehicle costs £15,000, this is how the calculation
works.
| 12,000 + 1/2 (15,000-12,000) x 100% |
= |
90% |
| 15,000 |
|
|
| |
|
|
| Firstly take 12,000 from 15,000 (cost) |
= |
3,000 |
| Divide this by 2 (to find half) |
= |
1,500 |
| Add this to 12,000 |
= |
13,500 |
| Divide this by 15,000 (cost) |
= |
0.9 |
| Times this by 100 to find the percent |
= |
90% |
Vans are full tax efficient and so are not subject to this equation.
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Assuming some home to office use of the vehicle,
are there any VAT benefits of Contract Hire?
Yes. Following the VAT changes of 1 August 1995 Contract Hire has
become even more desirable and more popular. There were three major
changes.
1. Businesses can recover the VAT payable on the purchase of cars
only if they are wholly for business use. Remember that even a single
mile of home-to-office travel means that the vehicle does not qualify
as "wholly for business use".
2. The financiers are able to recover all VAT payable on vehicles
purchased, as they are purchased wholly for business use, regardless
of the customer's use of the vehicle! This is where the major cost
savings lie.
3. There is a 50% restriction for business on the recoverable VAT
on leasing payments (not the maintenance element, which is still
100% recoverable, unless the car is wholly for business use). Whilst
reducing the benefit slightly for the customer, the overall savings
made are significant for Contract Hire.
What happens if I want to finish my contract
early?
If you wish to end the contract early a termination charge is payable.
This is usually 50% of the outstanding monthly rentals payable.
What are my options at the end of the contract?
The customer has three options available at the end of the contract
period.
1. To hand the vehicle back and replace with a new one.
2. To extend the contract at a discounted rate, usually 5% for a
six-month extension, 10% for a 12-month extension.
3. Ask for a purchase price and purchase as an individual. (The
company cannot purchase the vehicle; this is due to the tax advantages
that have already been achieved.)
Is there anything to pay at the end of the
contract?
Hopefully not! Charges are made only if the vehicle has done more
miles than contracted to do. This is called an excess mileage charge;
the excess mileage charge will be written on the contract and will
vary from vehicle to vehicle. To avoid this charge we encourage
customers to advise us during the contract if they feel that more
or fewer miles than originally expected are likely to be done and
we will amend the contract accordingly. The only other charge would
be if the vehicle had been damaged and not repaired.
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