10 Benefits of Using Contract Hire to Finance Your Company Vehicles

Contract hire is a way of a VAT registered business leasing a vehicle, for a set period of time, for an agreed annual mileage, at a fixed monthly payment. The monthly rental amount is determined by the cost of the vehicle, the rental period and expected depreciation. The normal rental period is 3 years, and the deposit is usually 3x the monthly payment. It is also possible to include maintenance packages in the Contract Hire agreement, so that the servicing and additional expenses are already paid for. Once the contract period ends, the business simply hands the vehicle back to the leasing company. This type of vehicle leasing is usually only available to businesses that have been trading for more than two years, but some Contract Hire companies have a scheme for new businesses.

Here are the top 10 reasons that businesses should consider Contract Hire:

1. Free up capital - By leasing a car or van rather than buying, your financial resources can be freed up. Using Contract Hire can help to improve the cash flow of your business as there is much less spent initially. Running costs are minimised as maintenance and breakdown insurance can be added to the monthly rental charge adding to your peace of mind.

2. VAT Benefits - one of the other main benefits to Contract Hire is the VAT incentives. The entire VAT payable on the finance can be claimed back if the vehicle is only used for business purposes, and half the VAT can be reclaimed if the vehicle is made available for personal use as well as business use.

3. Accurate Budgeting - As all costs are calculated at the time of the agreement, and included in the fixed monthly rental cost, accurate vehicle budgets can be forecast for several years in advance. Even servicing, replacement tyres and exhausts as well as vehicle tax can be included in the monthly payment.

4. No Depreciation - Depreciation is suffered by all vehicles, and is the loss of value over a given period of time. By then end of the first year, the average vehicle will have lost up to 40% of their value, and 60% by the end of the third year. Some vehicles will depreciate at such a rate that they become virtually worthless after three years. Leasing a car or van means that depreciation is no longer an issue you need to worry about. Purchasing a brand new car or larger van may be too expensive for your business, but you may be able to afford to lease one instead using Contract Hire.

5. Freedom of choice - Contract Hire Leasing can allow your business to choose from a wide range of makes, models, specifications and colours. Leasing companies purchase in bulk and have the latest models and offer competitive car and van deals.

6. Reduced Administration - Contract Hire reduces the administration usually associated with vehicle management, freeing up time which can be better spent.

7. Enhances Company Image - Up to date, well maintained vehicles can improve the image of your business with existing and potential clients and customers, and you may be able to afford a more prestigious car or larger van than you thought.

8. Annual Reviews - As each vehicle is subject to an annual review, it should be possible to increase or reduce the mileage allowance, or to add or remove the maintenance package. This can be beneficial if a vehicle is covering a higher annual mileage than was originally thought. Also, it may be possible to reduce the payment if the mileage is doing less than the projected mileage.

9. Benefits for Larger Fleets - For businesses with a large fleet of cars, it may be possible to offset the vehicle mileages against each other depending on the Contract Hire company. As the annual mileage limit is usually 10,000 miles per year, a high mileage vehicle covering 15,000 miles a year can be offset against a lower mileage vehicle covering only 5 000 miles a year. As there is usually a high financial penalty in the form of a charge per mile for exceeding the agreed mileage, pooled mileages can prove to be cost effective.

10. Worry Free Motoring - Additional options such as breakdown recovery and maintenance can be factored into the monthly rental charge, and so do not need budgeting for, or renewing. Everything from tyres and exhausts to automatically receiving tax discs can be arranged.


Whether it's a Ford van or a Mercedes C Class your business needs, why not see if Contract Hire is the best way to finance it?

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