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Contract Hire information
What Is Contract Hire?
Under Contract Hire, vehicles continue to be owned by the leasing company yet are hired to you for a set period of time and at a fixed monthly rate. This method of finance can be useful for companies wanting to free up credit lines or improve cash flow by implementing fixed cost fleet operation.
How Does Contract Hire Work?
The monthly rental charged is calculated based upon the cost of the
vehicle, the contract period and the anticipated resale value. It
is also takes into consideration the predicted mileage, service and
maintenance costs, together with any additional services such as relief
vehicles.
Under a Contract Hire agreement the funder retains ownership of the
vehicle at all times and therefore continues to absorb the subsequent
risks such as unforeseen running costs and uncertain resale values.
How Is Contract Hire Accounted For?
Where a vehicle has a partial private use then 50% of the VAT on
rentals is recoverable, whereas the service and maintenance elements
of the rental are fully recoverable.
Vehicles under Contract Hire are not recorded as assets on the balance
sheet, thus improving company gearing ratios.
