Question 1

What is Business Contract Hire and is it different to Business Car Leasing?

Accepted Answer

Both Business Contract Hire and Business Car Leasing are the same thing and instead of buying a car you simply rent it from a finance company for an agreed period of time. At Dick Lovett we have a team of business leasing and contract hire specialists who can help you choose how long you want the contract for and decide your annual mileage allowance. These criteria then help to determine the amount you will pay each month.

The most obvious difference between buying and leasing is that when you buy a car you own it and when you lease a car, you don’t. You are renting the car from the finance company, so at the end of the contract all you have to do is hand the car back in good condition – just like you would a hire car.

As with any contractual arrangement, you must fulfil your obligations under the lease agreement. If you don’t there’s likely to be more to pay so you should be mindful of what you have committed to and how the car is used. Exceeding the agreed mileage, returning the car early or in poor condition could incur extra charges.

Question 2

Can I use my company car allowance to lease a car?

Accepted Answer

Yes, you can use your company car allowance to take out a personal contract hire agreement on a brand-new car of your choice. The monthly rental cost is fixed making it easy to budget for.

Question 3

What are the tax benefits of business contract hire?

Accepted Answer

There are a few tax and VAT advantages when leasing a car through your business:

The monthly payment can be offset against taxable profits. How much depends on the CO2 emissions of your chosen car - if your car emits CO2 emissions of 110g/km or less, the full net monthly lease cost can be offset; if your car’s CO2 emissions exceed 110g/km 85% of the net monthly lease cost can be offset.

A car on contract hire is classed as "off balance sheet", which means it isn’t sitting on the books as a depreciating asset.

If your business is VAT registered you can reclaim 100% of the VAT on the monthly rental cost if the car is used exclusively for business. You can also reclaim 50% of the VAT if the car is also used personally and 100% of the VAT on a maintenance package, if you have added one to your contract hire agreement.

If you are self-employed as a sole trader, partner or an LLP member you won’t have to pay company car tax.

If your business is not VAT registered you’re still eligible for contract hire. You simply pay the VAT on the monthly rental cost.

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