Contract Hire and Finance Leasing: Which One is Right for Your Business?

Most business cars in the UK are sourced using a contract hire scheme. Choosing to manage your own fleet or purchase all the fleet vehicles…

Most business cars in the UK are sourced using a contract hire scheme. Choosing to manage your own fleet or purchase all the fleet vehicles outright can be a very costly and time consuming. Businesses that are interested in more efficiently managing their capital may find the perfect solution with vehicle leasing and fleet management. Fleet management can be outsourced to a specialist company like Maxxia, and your business will have one less thing to worry about.

Contract Hire and Finance Leasing

Advantages and Disadvantages of Contact Hire

If you decide to try contract hire for your business vehicles, you can leave the choosing and hiring of vehicles to a retailer that specialises in this area. They will also dispose of the vehicle at the end of the contract and be responsible for the maintenance and repair. Contract hire is advantageous because it frees up capital and allows your business to experience an improved cash flow. It’s a great solution for reducing your overhead costs and means that your business isn’t responsible for the maintenance of the hired vehicles. 50 per cent of VAT can also be claimed back and the motoring is fixed cost, meaning that there are no hidden expenses. The disadvantages of contract hire include the fact that there is no option to purchase the vehicles, although this is often not a relevant consideration. Your business will remain responsible for estimating the time and mileage use of the hired vehicles.

Advantages and Disadvantages of Finance Leasing

Just like with contract hire, finance leasing allows your business to hire vehicles for a fixed fee. However, finance leasing differs in that all the liabilities for the vehicles are passed on to your business, with the rentals appearing on your balance sheet at the end of the month. The advantage of finance leasing is that the monthly rentals are fixed and there are no hidden costs associated with the process. Your business will also be able to claim back 50 percent of the VAT on the finance element, and finance leasing is an additional line of finance that usually will not affect your business’ existing banking arrangements. All vehicles hired through finance leasing will appear as assets on your company balance sheet and you’ll be able to choose whether or not you wish to continue using the vehicle after the lease has come to an end. However, some businesses are put off finance leasing because the monthly rentals appear as a liability on their balance sheets. The option you choose depends entirely on the individual requirements of your business.