What is Contract Leasing?
With small to medium size businesses really feeling the pinch of the current economic state it makes sense for them to use contract hire to purchase their vehicles rather than paying for it with cash or taking out a loan.
As a business, if you buy a car with a loan, or with cash, then you are purchasing an asset for your business. This means that you can only write off a part of the purchase price each year, even if you have paid out the full amount. Especially if you buy the car with cash, this means there is a huge difference between what you have paid and what you can reclaim tax on.
With Contract Hire you could put down each month’s payments on your balance sheet, so there is no tax loss. But what is Contract Hire? “Contract Hire is the long term renting of a vehicle without the problems of disposal at the end of the term.”
The process works as such; a finance company purchases the vehicle for the customer, the customer then pays a monthly fee to the finance company. The finance company takes the risk of depreciation loss of the vehicle and is responsible for disposal of it at the end of the contract period. The length of the contract varies from 2 to 5 years.
Car leasing companies in Scotland set monthly payments based on the length of the contract; value of the vehicle, the estimated residual value and annual mileage. With fixed monthly costs, budgeting is kept simple especially when you know your commitment in advance.
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