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How does contract hire work?

Posted by Tom Fogg - Tuesday, 14 Aug 2018 00:00

Another popular choice for VAT – registered and non VAT – registered companies that want minimum outlay and maximum control of costs, especially when the maintenance and relief vehicle options can be included. With this VAT – beneficial financing package, one regular rental payment covers all risks, including costs of depreciation and disposal, for an agreed period of time and mileage. Road Fund License is included, but roadside rescue, maintenance and relief vehicle provision are options that can be added and changed to the monthly rental.

If your company leases a vehicle on a contract hire basis, you will pay to rent the vehicle in monthly instalments for a contract of 24 or 48 months, for example. Once the contract is up, the vehicle is returned to the leasing provider, leaving them to worry about depreciation values and disposal of the car or van.

Contract hire means your company can concentrate on its core activities, while avoiding the financial risk and administrative burden of owning your vehicle or fleet.

ADVANTAGES:

  • Minimum capital expenditure
  • Accurate monthly budgeting
  • Improved cash flow
  • Fixed interest rates
  • Reduced administration
  • On-going advice and support
  • Road Fund Licence provided (vehicle excise duty paid) for duration of contract
  • Optional maintenance package
  • Optional breakdown rescue cover
  • Optional replacement vehicle cover in event of breakdown

DISADVANTAGES:

  • Early termination can be expensive
  • If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
  • You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that stated in the 'Fair Wear and Tear Guide'
  • You must have fully comprehensive vehicle insurance
  • You will never own the vehicle as there is no option to buy it

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