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Our low monthly lease payments will make this one contract you will want to sign.
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Fasttrack Finance trawl the UK market so you don’t have to. Our experts (staff) liaise with manufacturers, dealers and lenders to obtain the best price for you,to secure the vehicle of your choice at the best price for you. It does not maker sense to use anyone else. Provides a package that normally covers everything (maintenance etc) except fuel and insurance. The agreement typically lasts either two or three years, and at the end of the agreement the car is handed back to the leasing company. Provided the car hasn’t gone over the mileage allowance that was originally agreed and is in a reasonable condition, no more money is due.
Contract hire is the most cost effective rate for businesses wishing to run new cars. The monthly rentals are fixed for the term of the contract and include Road Fund License (RFL). For VAT registered companies, a portion of the VAT may be reclaimed. The vehicle is handed back at the end of the contract, excess mileage charges will apply if the contract mileage is exceeded.
If you’re considering buying a new car for yourself or your company you are spoilt for choice by the various finance options available. However, one of the most consistently popular choices is contract hire – because it often proves the most cost-effective and the easiest to manage.
So how do contract hire agreements work? This guide to contract hire will explain.
What is contract hire?
Whenever you hear the term ‘car leasing’, chances are that it is referring to contract hire as it is the most common form of vehicle leasing agreement.
Basically contract hire means agreeing to take control of a car for a fixed period – it’s yours to drive but it is never actually yours to own. Instead you reach an agreement with the leasing company to make fixed payments (usually monthly) for the duration of the contractual period. At the end of the contract you return the car to the contract hire company.
Your contract hire payments will be determined by a number of factors. Firstly, there is the retail price of the car – that is the price you would have to pay if you were to buy it outright. Then, there is the residual value of the car – that is its estimated worth at the end of the contract taking into account depreciation, mileage, and condition. You then pay the difference between the two figures in monthly instalments. So the higher the residual value of the car, the lower your payments will be.
What are the pros and cons of contract hire?
Many of the advantages and disadvantages of contract hire are a matter of perception – i.e. what’s right for one driver might be wrong for another, and vice-versa.
For example by taking out a contract hire agreement you never take ownership of the car. That may be a problem for some, but an advantage for others who like the idea of being able to return the car and walk away without dealing with selling or trading the car for another one. Some contract hire agreements also include maintenance packages – meaning all you have to worry about is comprehensive car insurance, tyres, and putting fuel in the tank.
Contract hire offers the advantage of fixing many of your motoring costs – you know exactly what you will have to pay and when you have to pay it, helping you to budget. This also makes contract hire popular among VAT-registered companies who can reclaim 50% of the total payments made and 100% of the maintenance package costs. Hire rental tax allowances can also be applied.
On the downside you must return the car at the end of the contract – there is no option to buy as there is with a personal contract purchase (PCP) agreement.
Offset against taxable profits
When it comes to contract hire, the monthly payments the company pays during the year are normally fully offset against its taxable profits, therefore capital allowances can’t be claimed as well. However, the payments can’t be fully offset against its profits.
With leases, the rentals the company pays during the year tend to be offset against its taxable profits therefore capital allowances can’t be claimed as well.
Since 1995, businesses that acquire cars wholly for business use may recover the VAT. This change meant that lessors (who never actually use the car at all) can use the extra savings to reduce their lease rentals. Despite the rule restricting the VAT available to the user of leased cars to 50%, the overall effect has seen a huge increase in the amount of leased cars.
How does it work?
The monthly rental charge is calculated based upon the cost of the vehicle, the contract period and the anticipated resale value. The predicated mileage , service and maintenance costs, with any additional services such as relief vehicle are taken into consideration. Under Contract Hire agreement the finance company retains ownership of the vehicle at all times and therefore continues to absorb the subsequent risks. Rentals are subject to vat for which 50% can be reclaimed.
How is it accounted for?
Where a vehicle has a partial private use then only 50% of the VAT on rentals is recoverable, whereas the service and maintenance elements are fully recoverable. Vehicles on Contract Hire are not recorded as assets on the balance sheet, thus improving company gearing ratios.
Personal Contract Purchase the above applies with the exception to the reclaim of VAT.
Outstanding Offers on Cars and Vans from Fasttrack Finance
It was an excellent service, fast and effective with excellent customer service – the staff were brilliant and very helpful working with us at every step to ensure vehicles were delivered on time as requested and all vehicles taken away. I would have no hesitation in recommending the services of Fasttrack Finance.Andy First
Fasttrack Finance have also been absolutely brilliant, quick in processing any requests they have always sorted any problems out straight away and made sure that they liaise with us in every aspect of the process, which has been paper and hassle free. A pleasure to work with so far.Lynn Tosh
We’ve used Fasttrack Finance once before when we’ve needed short term loans for cashflow or investment in new products and they have been excellent. So we thought we would consider them for our contract hire requirements and I should have guest, they were faultless. Virtually instant approval and fast transfer of funds.Christopher Lee