Contract Hire, sometimes referred
to as an Operating Lease, is a long term rental agreement. Contracts
range from 12 to 60 months and are tailored to the businesses
Hire Company reclaims the VAT on the original purchase, which reduces
your monthly rentals (which are + VAT). Contract Hire is a very popular
choice for VAT registered companies as they can claim back 50% of the
VAT on the finance element for cars and generally 100% for commercials
(subject to no private use, no exempt turnover and not being on the Flat
Rate VAT Scheme).
On contracts with maintenance the
VAT on the service element is 100% recoverable. One of the major
benefits is that there are no disposal worries as the future value is
underwritten by the leasing company. Another benefit of Contract Hire is
that it is generally 'off balance sheet funding' (subject to
legislation change) which means it can improve your gearing ratio
(assets to borrowing ratio) and therefore possibly your borrowing
ability in the future.
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