Whether or not you are familiar with the benefits of contract hire and car leasing for businesses will most likely depend on the size of the business. This is the case whether it is owned by you or you are employed by the business. For example, if you own a business and you use your personal car for business purposes there are some large benefits that you are missing out on. Likewise if you are an employee using your own car for work purposes you could use salary sacrifice to cover the cost of your car whilst your employer funds it and you both take advantage of tax benefits.
Despite this, there are many businesses that have no idea of the benefits of leasing their vehicles using contract hire. The most appealing benefits for using contract hire is that a business can avoid as much as 100% of VAT – provided the car is used 100% for business and not personal reasons. If it is used for personal reasons then you will be able to avoid 50% of VAT.
In summary, contract hire is an ‘operational lease’ that allows a business to lease a company car by simply making a fixed monthly payment for a period that is typically between 2 and 4 years. At the end of the lease contract, the business returns the old company car and obtains a new car and a new lease contract.
In addition to the big VAT benefits the other advantages are:
• the business spends significantly less each month (as much as 60%) than it would need to spend on a loan or ‘hire purchase’ (it gets a ‘bigger bang for its buck’);
• there is no need to arrange or negotiate to sell the vehicle when a new one is required;
• there is no market value risk arising from the vehicle because it does not need to be sold in the open market at any point;
• the business can select the exact requirements online and have them delivered;
• it is certainly cheaper than ownership over the long term if the business needs to run and replace new vehicles more frequently than every five years or less;
• the business can include all costs of maintenance and services in the monthly price;
• the road fund licence will always be included for the first year of the lease contract and often for the life of the contract; and,
• vehicles can be kept relatively new and this promotes a positive, successful image of the business.
Given the above benefits, contract hire is also particularly useful for businesses looking to lease a van.