What is Contract Hire?
Contract Hire is a long term rental agreement and is the most common type of lease
available in the UK, it is also known as an operating lease.
What benefits does Contract Hire offer to your business?
Contract Hire will benefit the company or business who is seeking to remove assets
from their balance sheet, eliminate the financial risk associated with disposing
of the vehicle and if required, enjoy the convenience of a full maintenance service,
at a fixed monthly cost.
Why is Contract Hire our most popular product?
Since the tax laws changed in August 1995 and also in April 2009, Contract Hire
has grown year on year as the product of choice for all business users when funding
their vehicles. In 1995 the laws changed to allow leasing companies to reclaim the
VAT on new vehicles. In short, the effect of this action resulted in this product
becoming the most competitive funding option in the market.
Is Contract Hire subject to VAT?
All rentals are subject to V.A.T 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 or you can claim 100% of the VAT on commercial vehicles. You are
able to claim 100% of the VAT on the maintenance element of the rental if you take
What is the initial outlay?
As our Leasing Company is underwriting you as the user, the norm in this market
place is to take three rentals in advance. However, in some circumstances if you
or your company is considered 'blue chip', one advance rental may be acceptable.
Both these options provide you the customer with a low cash outlay to enter into
this type of contract.
What Payment Options do you have with Contract Hire?
There are 3 different Payment/Rental Profiles which support this product:
Terminal Pause – If you take a 36 month contract, they will pay 3 rentals
in advance, followed by 33 monthly rentals that are then followed 2 months where
no rentals are due before the end of the contract.
Spread Rentals - The normal payment profile in today's market as it presents
the opportunity to produce a lower rental than 'terminal pause' but technically
the same length of contract. If you take a 36 month contract, you will pay 3 rentals
in advance followed by 35 monthly rentals and the contract ends on month 36.
Enhanced Deposit - This is used when you want to pay a lump sum for the initial
payment to reduce your monthly rental. If you take a 36 month contract, you can
pay 1 rental in advance followed by 35 monthly rentals and the contract ends on
What services are available on a maintenance agreement for Contract Hire?
Items included are servicing, routine maintenance, unlimited tyres only, exhausts,
batteries. Items excluded are glass and damaged items. Arranging your periodic maintenance
is easy, we have a “Dedicated Line” telephone service where you can
call to arrange the following:
- Service bookings with FREE collection and delivery
- Breakdown and recovery services + relief vehicle (Optional with a maintenance or
non maintenance contract)
- Tyre replacement service with mobile fitting available Free of Charge
- MOT booking facility
- Foreign travel documentation and advice
Just call our Dedicated Line and all your maintenance requirements will be taken
care of leaving you with a hassle free administration experience. Services should
be carried out as per the guidelines in the manufacturer's handbook; as failure
to follow this procedure could invalidate the vehicle manufacturer’s warranty.
Do we insure the Contract Hire Vehicle?
No. It is your responsibility to insure the vehicle. Please ask to see the Terms
& Conditions of the contract.
What happens if you exceed your contract mileage allowance?
If a vehicle is returned over mileage you are 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. The pence per mile (ppm)
figure is broken down to cover the two areas where additional costs are incurred;
Depreciation - The additional mileage travelled means that when the vehicle is disposed
of at the end of the hire period the full amount anticipated at the outset of the
contract would not be achieved. The more miles the vehicle has driven the less it
would be worth when it is sold.
Maintenance (if taken) - The maintenance budget initially set would not meet the
additional costs incurred if the contract mileage is exceeded. For example, an additional
service or set of tyres may be required due to any extra mileage.
The excess charge is made, unless mileage pooling is agreed, after the vehicle is
returned. The invoice is broken into two areas, finance which covers the additional
depreciation and services for additional maintenance costs. For normal VAT registered
companies 50% of the VAT element of the finance charge can be recovered (100% for
commercial vehicles) and 100% of the services charge.