Business Contract Hire
For VAT registered companies that want minimum outlay and maximum cost control.
Contract Hire is a vehicle-leasing contract. The hirer benefits by paying a single fixed rental each month, this includes Road Fund Licence. If required, fixed monthly payments can include all servicing and maintenance including tyres.
Rental periods typically vary between 12 and 48 months, there are no large initial payments to be made, deposits are usually equivalent to 1 or 3 months rental.
VAT is payable on rentals but is partially or totally reclaimable by VAT registered companies depending on the use of the vehicle.
At the end of the contract the vehicle is returned to the funder.
The major benefits of contract hire are:
- Off balance sheet funding
As they are owned by the funder, vehicles do not appear on the clients company's balance sheet. The removal of capital assets from the balance sheet can improve the client companies gearing (borrowing to asset ratio - Fixed cost
A fixed monthly payment is charged over the life of the contract and as a consequence budgeting is made much easier. - VAT Benefits
Contract hire has significant VAT benefits in that the funder can claim back the VAT on the purchase price of the new Car. These benefits are passed onto the client. As a user the client can then claim back 100% of the VAT on the servicing element of the rental cost and 50% of the finance cost. - Financial Risks
The funder takes all the risks involved in everything from the resale value of the vehicle, the maintenance of the vehicle and any change in interest rates. - Administration Burden
As the funder is supplying, the maintenance and is disposing of the vehicles, the clients administration is kept to a minimum. - Outright Purchase of an existing traditionally funded fleet.
Known as "Purchase and Lease Back", the existing fleet is purchased at a price that is agreed and is immediately leased back to the client using an agreed funding method. Despite the use of the word "lease" and in order to take advantage of the financial and administrative benefits of Contract Hire, Contract Hire is normally the preferred funding method. - Significant Cash Flow advantages can result from a "Purchase and Lease Back" transaction
Business Contract Purchase
For companies with high value cars who like the option to purchase without depreciation risks.
This method of funding is ideal for companies who cannot fully reclaim VAT and for the financing of more expensive cars.
The major difference between Contract Purchase and Contract Hire is that there is an opportunity for the client to purchase the vehicle at the end of the contract period. As an alternative the vehicle, at the end of the contract can be returned to the funder.
If the client is restricted in the amount of VAT it is able to reclaim, or if they operate expensive cars (typically in excess of £25,000), a taxation advantage may be achieved by retaining ownership of the vehicles.
Contract Purchase offers all the operational, managerial and administrative benefits of Contract Hire, together with the tax-efficient benefits of ownership, such as the ability to claim capital allowances.
The client enters into a finance agreement for the vehicle for a pre-determined period at a fixed monthly rate.
They have the option to buy the vehicle at the end of the contract by making a final 'balloon' payment, agreed at the start of the contract. Alternatively the vehicle can be returned at the end of the contract but with nothing further to pay even if the funder sells the vehicle for less than the balloon payment.
The single, fixed monthly payment takes into account the cost of the vehicle, its rate of depreciation, the length of the contract, mileage and any additional services that may be required.
Lease Purchase
For non VAT registered Companies or individuals who want evential ownership of the vehicle.
It is purely a finance package. There is no option to return the vehicle at the end of the agreement. As the funder cannot claim the VAT on the purchase of the vehicle the monthly payments payable by the customer are not subject to VAT. The vehicle is registered in the name of the customer, and where this is a company, the vehicle will appear on the balance sheet, and Writing Down Allowances can be claimed.
Lease Purchase is similar to Hire Purchase in many ways, except with Lease Purchase the monthly payments are much lower because a lump sum final payment (based on the estimated resale value of the vehicle and its end of term mileage) is deferred until the end of the agreement.
There is the security of fixed monthly payments but for considerably less.
Personal Contract Purchase (PCP)
Similar to Business Contract Purchase but for the Individual.
The major benefit of Contract Purchase and is that there is an opportunity for the client to purchase the vehicle at the end of the contract period. As an alternative the vehicle, at the end of the contract, can be returned to the funder.
The client enters into a finance agreement for the vehicle for a pre-determined period at a fixed monthly rate.
They have the option to buy the vehicle at the end of the contract by making a final 'balloon' payment, agreed at the start of the contract. Alternatively the vehicle can be returned at the end of the contract but with nothing further to pay even if the funder sells the vehicle for less than the balloon payment.
The single, fixed monthly payment takes into account the cost of the vehicle, its rate of depreciation, the length of the contract, mileage and any additional services that may be required.
This is an agreement that allows a vehicle to be hired for a fixed period without the option of ownership. Rentals cover both the initial cost of the vehicle and the finance charges.
At the end of the contract, the proceeds from the sale of the vehicle, less a small administrative fee, are returned to the hirer, in effect, a refund on a proportion of the rental payment.
Payment of a proportion of the cost of the vehicle can be deferred by incorporating a final payment in the rental. This should be less than the vehicle’s anticipated residual value at the end of the agreement and can be paid when the contract is completed.
Finance Lease
For VAT registered companies who wish to handle their own administration and maintain their fleet as a balance sheet asset
This is an agreement that allows a vehicle to be hired for a fixed period without the option of ownership. Rentals cover both the initial cost of the vehicle and the finance charges.
At the end of the contract, the proceeds from the sale of the vehicle, less a small administrative fee, are returned to the hirer, in effect, a refund on a proportion of the rental payment. VAT is payable on the rentals
Payment of a proportion of the cost of the vehicle can be deferred by incorporating a final payment in the rental. This should be less than the vehicle’s anticipated residual value at the end of the agreement and can be paid when the contract is completed.
Hire Purchase HP
This is the simplest way to acquire a vehicle.
You’ll be asked to pay a deposit, the amount of which is negotiable. The remaining cost plus interest and charges are then repaid by regular monthly repayments. A fixed repayment means that you’ll always know what your monthly costs will be as these remain the same throughout the period.
Using this method means you are working towards owning your vehicle over a fixed period of time. Because there is no residual value or balloon payment at the end of the period you have the benefit of the full sales proceeds when you come to dispose of your vehicle. However this does of course mean that the monthly amounts are likely to be significantly higher than when using a funding method that incorporates a final balloon payment.
Because of its simplicity Hawkriver Ltd can arrange Hire Purchase for vehicles or indeed any portable asset not part of the fabric of a building. Hire Purchase is particularly useful for the funding of assets that have little or no disposable value at the end of the finance period. Please telephone for details.