Finance and Leasing

Benefits of Contract Hire:

• Low initial outlay
• 100% of VAT reclaimable on LCVs, 50% on cars
• No vehicle disposal problems
• No depreciation risks
• 100% of all payments made can be offset against corporation tax (Cars 85% if Co2 > 130g/km)(LCV 100% regardless of Co2)
• Reduced administration
• Tax disc provided for contract duration
• Optional maintenance package
• Payment patterns can be structured to suit business

Disadvantages of Contract Hire:

• Hirer does not own the vehicle
• Not suitable for customers with unpredictable mileage as excess mileage charges apply for exceeding stated annual mileage
• Full VAT liability for non-VAT-registered companies
• Reduced tax allowances on cars with emissions over 130g/km (LCVs are still 100% regardless of Co2g/km)
• Early termination can be costly (typically 50% of future rentals)
• Vehicles not classed as a company asset
• Potential damage recharges if vehicle is handed back in a poor state at the end of the agreement

Benefits of Finance Lease:

• More flexible than Contract Hire. No mileage restrictions and no expensive early termination charges.
• Sale proceeds may exceed final balloon, thus making a profit.
• Can incorporate a balloon payment to reduce monthly costs.
• 100% of VAT reclaimable on LCVs, 50% on cars
• Low initial outlay
• 100% of all payments made can be offset against corporation tax (Cars 85% if Co2 > 130g/km)(LCV 100% regardless of Co2)
• Payment patterns can be structured to suit business.

Disadvantages of Finance Lease:

• Hirer exposed to risks of ownership and potential residual value losses.
• Sale proceeds may not match final balloon.
• Full VAT liability for non-VAT-registered companies.
• Reduced tax allowances (85% instead of 100%) on vehicles with emissions in excess of 130g per km.
• Maintenance package not available on this type of finance.

Benefits of Contract Purchase:

• More transparent and flexible than Personal Contract Hire. No expensive early termination charges.
• No risk to the hirer, as the full residual value risk is passed to the finance company.
• Possible profit opportunity if sale of vehicle exceeds residual value.
• Low initial outlay – typically three payments in advance.
• Monthly payments are fixed, making budgeting easier.
• You can have the option of a maintenance package for your vehicle, thus avoiding any unexpected bills.

Disadvantages of Contract Purchase:

• Vehicles are on balance sheet which may inhibit further borrowing
• Contracts include mileage and wear limitations if option to hand back to finance company is exercised.
• Unlike Contract Hire, annual road fund license is not included with the majority of finance companies offering this method of financing.
• No option to reclaim VAT within monthly payments unless you are financing a LCV in which case you can reclaim the VAT on purchase price

Benefits of Lease Purchase:

• Any profit at disposal retained by the customer.
• Interest element of repayments is offset against tax.
• Customers can claim writing down allowances.
• Monthly payments are fixed, making budgeting easier
• Well recognised method of finance, easy to account for.

Disadvantages of Lease Purchase:

• Road tax not provided by finance company after 1st year.
• Administrative burden retained by customer.
• Customer is liable for residual value risk.
• Vehicles are on-balance sheet which may inhibit further borrowing.
• Non VAT registered companies looking to finance a commercial vehicle have to pay the full VAT element up front (which is unrecoverable) together with initial deposit.
• No option to reclaim VAT within monthly payment unless you are financing a LCV, in which case you can claim the VAT on the purchase price.

Benefits of Personal Contract Purchase:

• More transparent and flexible than Personal Contract Hire.
• No expensive early termination charges.
• No risk to the hirer, as the full residual value risk is passed to the finance company.
• Possible profit opportunity if sale of vehicle exceeds residual value.
• Low initial outlay – typically three payments in advance.
• Monthly payments are fixed, making budgeting easier.
• You can have the option of a maintenance package for your vehicle, thus avoiding any unexpected bills.

Disadvantages of Personal Contract Purchase:

• Excess mileage charges apply if you go over your contract mileage and subsequently decide to exercise your option to hand the vehicle back at the end of the term.
• Unlike Personal Contract Hire, annual road fund licence is not included with the majority of finance companies offering this method of financing.
• Potential damage recharges if the customer exercises their option to hand the vehicle back at the end of the agreement

Benefits of Personal Contract Hire:

• Low initial outlay – typically three rentals in advance.
• Monthly rentals are fixed, making budgeting easier.
• No risk to the hirer, as the full residual value risk is passed to the finance company.
• Road fund licence included for the contract term, avoiding you having to pay to re-tax the vehicle each year.
• You are not exposed to any depreciation risk on your vehicle.
• You have no responsibility for the disposal of the vehicle.
• Administration burden handed to third party.
• Optional maintenance package

Disadvantages of Personal Contract Hire:

• Early termination can be costly (typically 50% of future
  rentals)
• Not suitable for customers with unpredictable annual mileage as excess mileage charges apply for exceeding stated annual mileage
• Hirer does not own vehicle so cannot benefit from potential residual value rewards
• Potential damage recharges it vehicle is handed back in a poor state at the end of the agreement

Benefits of Personal Hire Purchase:

• Any profit at disposal retained by the customer.
• Monthly payments are fixed, making budgeting easier
• Well recognised method of finance, easy to account for.

Disadvantages of Personal Hire Purchase:

• Road tax not provided by finance company after 1st year.
• Administrative burden retained by customer.
• Customer is liable for residual value risk.