Posts Tagged ‘finance lease’
Tax Benefits of Contract Hire
Car leasing, personal contract purchase, contract hire, lease purchase and car loans are all different ways to finance the cost of cars and vans. Many people are confused by the differences in these financing options so I thought I would focus on ‘contract hire’ and explain how this technique works.
Leasing addresses one of the biggest issues associated with the acquisition of new vehicles and that is depreciation. As soon as you’ve been handed the keys to your brand new motor its value falls through the floor.
When you take out a car lease the residual value of your selected vehicle is calculated. The is the estimated value of the vehicle at the end of the agreed lease period based on the anticipated mileage during this time. The calculated residual value of your chosen vehicle is then deducted from either the current manufacturers retail price, or a value agreed with the leasing firm, and you will pay the remainder through your monthly lease payments. So the higher the residual value as a proportion of the current value, the less you will need to pay each month.
Contract hire is a popular vehicle financing technique that isparticularly beneficial for customers who are registered for VAT such as small businesses and self employed people. If your vehicle is used exclusively for business purposes you can reclaim 100% of the VAT. Even if you use your car or van for some personal use you can still reclaim 50% of the VAT.
In a contract hire agreement you actually hire the vehicle for an agreed period, usually for between 12 and 60 months during which time a fixed rental is paid, based upon the mileage. At the end of the agreed contract hire period, as in the case of car leasing, the vehicle is returned to the supplier. You will not be surprised by any unforeseen disposal or depreciation costs.
Contract hire can optionally include full vehicle maintenance which may include routine servicing and replacement tyres. Up to 100% of your contract hire rental charges can be offset against your taxable profits and minimal capital outlay is required.
It’s no surprise that contract hire is the favoured vehicle financing option for many businesses and self-employed people.
For cheap car leasing I recommend Nationwide Vehicle Contracts.