Contract Hire Explained
Wednesday 27 January 2010 | By Nige O'SheaBack to Blog
Hello again and welcome to the blog - where all the awkward questions get answered. This blog, I'm focusing on Contract Hire. No, it's not when you want to commit a murder…it's a long-term rental agreement, where the leasing company reclaims the VAT on the original purchase. Which, reassuringly, is a lot more legal than committing a murder. Contract Hire reduces your rentals (which are + VAT). It can include maintenance, a relief vehicle and breakdown assistance. One of the main benefits of Contract Hire is that you, the customer, have no disposal worries; however, you are responsible for any excess mileage charges, damage recharges and any early termination costs. No - not those kinds of termination costs!
Generally, Contract Hire is 'off balance sheet funding', providing it is not a very long contract with a highly depreciating asset. Generally, every standard 36 month Contract Hire would be 'off balance sheet'. This has the effect of lowering your 'gearing ratio' or, to put it into plain English, you own more of your assets and it can make borrowing elsewhere easier!
Contract Hire has many benefits, including accurate monthly budgeting; improved cash flow (as you leave your money in your business); and an interest rate which is fixed at the start of the contract. Rentals are allowable against taxable income (generally 100% on commercials and cars up to 160 g/km) and the VAT is recoverable on rentals, (generally 100% on commercials and 50% on cars). So it's all good news…unless, of course you are a murderer. In which case, it's probably a bit boring.
So remember, if you want no depreciation risks and to free your balance sheet of your vehicles, ask us for a Contract Hire quotation and, if you have any specific Contract Hire questions, then email me personally. Look forward to hearing from you…
Read also
Tax benefits of a Truck
Wednesday 31 March 2010
Contract Purchase Benefits
Thursday 04 February 2010
Confused by Tax Rules?
Tuesday 19 January 2010
Readers' Comments
Something to add to the discussion? Post your own Comment