Contract Hire for Tax Benefits
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 a car basically takes care of one of the biggest financial issues associated with acquiring a new vehicle which 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 new car lease the residual value of your chosen car or van will be calculated by your supplier. The is the estimated value of the vehicle at the end of the agreed lease period based on the anticipated mileage during this time. This calculated residual value is then deducted from the manufacturers retail price and the remaining sum is divided up into monthly payments that you will pay over the lease period. 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. You will return the vehicle to your supplier at the end of your contract hire period, much the same as a car leasing contract. You will not encounter any painful surprise 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 .
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