Business Contract Hire is an agreement where
the vehicle is hired for a pre agreed period and mileage and at
the end of the period you simply hand the car back and start
again.
Monthly payments are comparatively low because you are actually
funding the depreciation costs of the vehicle and not its full
value, with the payments fully allowable against taxable
profits.
Personal Contract Hire is especially beneficial
to business principals, senior managers and directors who would
prefer to simply hire a vehicle in their own name.
This has the advantage of being particularly tax efficient, as
it is not viewed in the same way as a company car provided by
the employer. The same tax principles apply as to that of
Personal Contract Purchase, but without the final options at the
end of the agreement
Hire Purchase is available on a either a fixed
rate or variable rate agreement.
With Hire Purchase,
full ownership falls to the hirer, depreciation is at the
owners’ risk and the vehicle can be included as a balance sheet
item.
Hire Purchase with Residual Payment is the same
as Hire Purchase but payments may be reduced in the short term
by deferring a final 'residual' payment to the end of the
agreement, which is realised on the sale of the vehicle.
The residual value should be based on a realistic and achievable
figure, taking into account the age and expected mileage,
particularly as this is at the hirers’ risk.
Personal Contract Purchase is ideal for drivers
that receive a monthly cash allowance instead of a company car.
Monthly payments are based on the chosen vehicle price less its
predicted guaranteed future value and at the end the driver can
make the final payment or return the car.
Finance Lease is where the vehicle is hired for
the duration of the agreement with each rental attracting VAT.
This rental payment is allowable against taxable profits on cars
up to £12,000 and fully on commercial vehicles.
Any equity belongs to the hirer and can be written into a
balance sheet. As this has low initial outlay and can be tax
efficient for companies, it is typically used for vans and
commercial vehicles.