What benefits does Contract Hire offer to me? Contract Hire will benefit anyone who is seeking to remove assets from their balance sheet, eliminate the financial risk associated with disposing of the vehicle and enjoy the convenience of a full maintenance service, at a fixed monthly cost. Why is Contract Hire a popular product? Since the tax laws changed in August 1995, Contract Hire has grown year on year as the product of choice for all business users when funding their vehicles. At that time the laws changed to allow leasing companies to reclaim the VAT on new vehicles. Is Contract Hire subject to VAT? All rentals are subject to VAT and as such should Government legislation change, i.e. VAT rate (currently 20%), these changes would be passed on to the customer. As this product is a ‘usership’ style contract, all rentals are subject to VAT. There is a 50% restriction on the recoverable VAT for the customer (subject to being VAT registered) on all leasing rentals if there is any private or non business use of the vehicle. Customers are able to claim 100% of the VAT on the maintenance element of the rental should they take this option. What is my initial outlay? The norm required by the Finance Provider is to accept three rentals in advance. However, in some circumstances if the customer is deemed as ‘blue chip’, one advance rental may be accepted. Both of these options provide the customer with a low cash outlay to enter into this type of contract. What services are available on a maintenance agreement for Contract Hire? Items included are servicing, routine maintenance, unlimited tyres, exhausts and batteries. Items excluded are glass and damaged items. Does the Finance Provider insure the Contract Hire Vehicle? No. It is the customer’s responsibility to insure the vehicle. Please see the Terms & Conditions of the contract. What happens if I exceed my contract mileage allowance? Should a vehicle be returned over mileage some drivers (dependant on policy) may be liable for an excess mileage charge. With any contract hire agreement, the predicted annual mileage of the vehicle is crucial, as it will affect the resale price at the end of the contract and the servicing costs. If that mileage is exceeded, a charge will be made for every mile over the agreed amount to pay for the increased costs incurred. Final Points Contract Hire is a great product, but before you settle on this method of payment, there are a few things you need to think about. Always ensure that you are as accurate as possible when estimating the mileage you are likely to do, when you enter into a Contract Hire Agreement. There will be an excess mileage charge if you go over your estimate, and it could end up costing you a lot of money. It is industry standard that Contract Hire brokers will advertise the best rates possible i.e. 10k miles per annum. If you know you are going to do more than this, it’s better to get it right at the beginning rather than face the risk of a large bill later. Another thing to be mindful of, is the condition that you expect the vehicle to be in when you return it to the contract hire provider at the end of the contract. Fair wear and tear is acceptable, but damage that requires attention by a body shop is not. If the vehicle is to be used for heavy construction, and likely to get the knocks and scrapes associated with those trades, it may be better to opt for Finance Lease or Lease Purchase as it will give you greater control at the end of the contract term. About the Author Robert Dadzie is the business manager at Vanarama Manchester West. Vanarama Manchester West part of the Autorama Group, is a leading provider of commercial vehicle leasing in the Greater Manchester Region. For further information on leasing or to obtain a quote, please visit www.vanaramamanchesterwest.co.uk Alternatively you can contact Robert Dadzie on 0161 401 0541 or email robert.dadzie@vanarama.co.uk
Contact Number: 0161 401 0541. Email: robert.dadzie@vanarama.co.uk
I am the Business Manager for Vanarama Manchester West. I am a commercial vehicle leasing expert…
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