Car Leasing Blog

This is quite a difficult question to answer, nominally because there are different contracts available to companies in the uk, so for this article we will deal just with the most popular company car leasing option - Contract Hire

Contract Hire is essentially a hire contract similar to that you would get from any rental company, it just has a longer fixed term and fixed mileage.

First of all lets deal with the term element. The term can range from 3 months upto 5 years, but realisticly, the best deals are to be had over a 2 or 3 year period.

Mileage - always a sticking point for most businesses so let me answer the main queries first:

No you are not limited to 10,000 miles per annum. You choose the mileage up front (anything upto 70,000 miles per year) and then the rental is calculated accordingly.

No you will not pay £1 per mile excess mileage. And if you do - dont bloody sign the contract!! The avergae excess mileage rate is in the region of £0.04p - £0.12p per mile.

Off sheet accounting, is one of the prominent reasons why companies would opt for Contract Hire. Dont worry, you dont need to be an accountant to understand this, and I will keep it simple.

If you purchase an asset (such as a desk or car or building), the value of that asset is placed on the balance sheet of a company and depreciated annually by your acountant. As such you pay tax on this value placed. Not always good for alot of people. The benefit would be that your balance sheet looks better.

When you lease an asset, there is no entry in the balance sheet (because you dont own it) so the payment (or 90% of it in the case of Contract Hire) is the effectivley ‘lost’ in the profit and loss account (meaning no tax on the payment)

So basically, for cars you can ‘write off’ 90% of the payment against each monthly profit and loss account and for vans and commercial vehicles its 100%

VAT - Another handy one. Cars first:

50% of the VAT payable on a Contract Hire agreement can be reclaimed, positivley affecting cashflow (as you are only paying VAT on the payment instead of the whole vehicle).

On the maintenance element of the contract, 100% of the VAT can be reclaimed. Which is nice

Next vans and commercial vehicles.

100% of the VAT can be reclaimed on the van or commercial, and 100% on the maintenance as such.

Road Fund Licence - Is covered in a contract hire agreement throughout, you dont have to worry.

Initial Capital Outlay - Is usually restricted to the equivalent of 3 monthly payments, but in some cases (and multiple orders) can be reduced to monthly in advance.

There is my bried overview of contract hire for businesses, please,please,please do not hesitate to ask if you have any questions. I am more than willing to help

Take care for now.