Get Your VAT Back with Contract Hire

Car leasing, personal contract purchase, contract hire, lease purchase and car loans are all different ways to finance the cost of cars and vans. The variety of vehicle financing options available today can be confusing so I thought I would focus on ‘contract hire’ and explain how this technique works.

Leasing a car basically takes care of one of the biggest financial issues associated with acquiring a new vehicle which is depreciation. The value of your brand new car falls through the floor, even before you have driven away from your supplier.

When you take out a new car lease the residual value of your chosen car or van will be calculated by your supplier. This is the estimated value of the vehicle at the end of the agreed lease period, usually 2 or 3 years, based on your expected mileage in that period. This calculated residual value is then deducted from the manufacturers retail price and the remaining sum is divided up into monthly payments that you will pay over the lease period. So the higher the residual value as a proportion of the current value, the less you will need to pay each month.

Contract hire is a popular vehicle financing technique that isparticularly beneficial for customers who are registered for VAT such as small businesses and self employed people. If your vehicle is used exclusively for business purposes you will be pleased to find that you can reclaim 100% of the VAT. Even if you use your car or van for some personal use you can still reclaim 50% of the VAT.

A contract hire agreement means that you have actually hired the selected car or van for an agreed period, usually between 1 and 5 years, during which time you will pay the agreed rental, based upon mileage. At the end of the agreed contract hire period, as in the case of car leasing, the vehicle is returned to the supplier. You will not encounter any painful surprise disposal or depreciation costs.

Contract hire can optionally include full vehicle maintenance which may include routine servicing and replacement tyres. Up to 100% of the rental charges can be offset against taxable profits and minimal capital outlay is required.

It’s therefore no surprise that contract hire is the favoured financing option chosen by many businesses and self-employed people.

For cheap car leasing I recommend Nationwide Vehicle Contracts.