Contract Hire
Contract Hire is a finance method designed for maximum benefit for VAT registered businesses. It is designed to make the provision of company vehicles tax efficient and risk free. It is a flexible approach that can be tailored to your individual financial and operational requirements
The advantages of this include:-
Contract Hire is a finance method designed for maximum benefit for VAT registered businesses. It is designed to make the provision of company vehicles tax efficient and risk free. It is a flexible approach that can be tailored to your individual financial and operational requirements
Benefits include:-
- Tax efficient – rentals allowable against corporation tax
VAT savings
- No depreciation or disposal concerns allowing you to budget accurately
- Fixed monthly charges significantly improve cash flow forecasts
- Savings can be generated on most makes and models by using our buying power
- Funded ‘off-balance sheet’ leaving you with more time and money to invest in your business.
- Contract can include all maintenance costs
- Rentals based on agreed annual mileage
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What is the contract duration?
- Variable contract duration (typically 1-4 years) for new vehicles
- Our maximum mileage allowance is 120,000
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Who owns the vehicle?
- Agility UK own the vehicle
- Is this a disadvantage? No – with a contract hire vehicle you simply hand back the keys and if required collect a set of keys for your new car without the need to arrange for sale of the old car or arrange financing of the new car.
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Can the vehicle be supplied by a dealer of my choice?
- Yes. However, Agility UK have preferential terms with a select number of dealers therefore this may affect the monthly rental.
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Who insures the vehicle?
- It is a condition of the contract that the customer (being the keeper of the vehicle) insures the vehicle on a fully comprehensive basis. Private users may also be asked to take out GAP insurance
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Who carries the residual value risk?
- The risk lies entirely with Agility UK. A residual value is calculated at the time of quoting but if at the end of the term the actual value is less than predicted then Agility UK is responsible for the loss
- The second hand car market is highly volatile and unpredictable. To this end, companies purchasing cars rather than opting for contract hire put their profits at risk by gambling with an unknown vehicle price when they come to sell the vehicle in 2, 3 or 4 years time
- Agility UK has a team that are expert at predicting future values and achieving the maximum value for the vehicle at the end of the contract
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Who carries the ongoing maintenance costs?
- The customer can decide to have a contract hire vehicle on a fully maintained or non maintained basis
- If the vehicle is on a fully maintained contract Agility UK are responsible for maintaining and servicing the vehicle and includes all costs due to fair wear and tear. Additional services can also be included such as breakdown and/or relief vehicle cover.
- If the vehicle is on a non maintained contract the customer is responsible for maintaining and servicing the vehicle in accordance with the manufacturers recommendations.
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Where do I take the car for servicing?
- The same would apply to both fully maintained and non maintained vehicles.
- Usually this would be to any franchised dealer for the make of car.
- For fully maintained contracts, when your vehicle is supplied you would be asked to nominate your preferred dealer(s) and Agility UK would ensure that accounts are created.
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What happens if the car breaks down?
- This depends on the type of contract you have
- If the vehicle is fully maintained it could come with breakdown cover for the duration of the contract.
- If the vehicle is non maintained the customer would be responsible for providing their drivers with appropriate breakdown cover. Agility UK can provide this if required.
- The customer also has the benefit of the manufacturers warranty
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Who provides Road Fund Licence?
- Road Fund Licence for all contract hire vehicles is included in the monthly rental
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Can I take the vehicle abroad?
- Yes but you would require authority from Agility UK in the form of a VE103 document and you would be required to confirm that European breakdown and recovery insurance has been arranged.
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Are contract hire vehicles on or off balance sheet?
The advantages of this include:-
- Reduces the customers asset value/investment level thereby increasing the return on investment ratio (the profit is now a larger percentage of the asset value)
- Makes the customer a better performer in the eyes of current/potential investors, including the banks
- Avoids the need for a loan or reduces impact on overdraft facility
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What deposit is required?
- This is typically three months but…
- Will vary depending upon the number of vehicles involved, the monthly rental and the financial strength of the customer.
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Can the monthly payments be offset in full against Corporation Tax?
- If the vehicle costs over £12,000 a proportion is disallowed. Agility UK can provide further information in this regard but recommend that you take advice from your company accountant
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Are there any VAT benefits of Contract Hire if the vehicle has some home to office use?
- If cars are purchased, businesses can only reclaim the VAT if they are ‘wholly for business use’. A single mile of home-to-office travel means that the vehicle is not ‘wholly for business use’.
- Agility UK can recover all VAT payable on vehicles purchased as they are purchased wholly for business use, regardless of the customer’s use of the vehicle. This is where major cost savings lie.
- The customer can recover 50% of the VAT on leasing payments (this is 100% if the vehicle is say a pool car which is ‘wholly for business use’) and 100% of the VAT on the maintenance element.
- Savings made are significant for Contract Hire over Purchase
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What happens if I want to terminate the contract early?
- A contract can be terminated at any time.
- There will be an early termination charge which will be calculated in accordance with the contract. These will be kept to an absolute minimum.
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What happens at the end of the contract?
There are four options:-
- Hand the vehicle back and walk away
- Hand the vehicle back and replace with a new one
- Extend the contract (subject to age and mileage)
- Ask for a purchase price and purchase as an individual (the customer cannot purchase as a business – this is due to the tax advantages the customer has already benefited from).
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Is there anything to pay at the end of the contract?
- There shouldn’t be!
- Charges will be made if the car has done more miles than it was contracted to do. These charges are called excess mileage charges and are clearly shown on the contract.
- Excess mileage charges can easily be avoided as Agility UK regularly monitor vehicle mileage and, with your agreement, can adjust contracts mid term. Rentals can also be reduced if mileage covered is less than contracted.
- The only other charges would be if the vehicle has not been maintained in accordance with the manufacturers recommendations or if the vehicle has been damaged and not repaired (fair wear and tear excluded).Agility UK operate to the BVRLA Fair Wear and Tear Guidelines.
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Other options?
- Contract Purchase
- Finance Lease
- Lease Purchase
- Hire Purchase
- Outright Purchase
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