Financial Services

Contract Hire What Is It? Under Contract Hire, vehicles continue to be owned by the leasing company yet are hired to you for a set period of time and at a fixed monthly rate. This method of finance can be useful for companies wanting to free up credit lines or improve cash flow by implementing fixed cost fleet operation. How Does It Work? The monthly rental charged is calculated based upon the cost of the vehicle, the contract period and the anticipated resale value. It is also takes into consideration the predicted mileage, service and maintenance costs, together with any additional services such as relief vehicles. Under a Contract Hire agreement the funder retains ownership of the vehicle at all times and therefore continues to absorb the subsequent risks such as unforeseen running costs and uncertain resale values. How Is It Accounted For? Rentals paid on vehicles under £12,000 are fully deductible against corporation tax. However, for higher priced vehicles only a proportion of the payments can be offset. Where a vehicle has a partial private use then 50% of the VAT on rentals is recoverable, whereas the service and maintenance elements of the rental are fully recoverable. Vehicles under Contract Hire are not recorded as assets on the balance sheet, thus improving company gearing ratios. Financial Services