Van leasing, personal contract purchase, van contract hire, lease purchase and van loans are all different ways to finance the cost of your vehicle. Many people are confused by the differences in these financing options so I thought I would focus on ‘van contract hire’ and explain how this technique works.
Leasing deals with one of the biggest issues associated with the acquisition of new vehicles and that is depreciation. As soon as you’ve been handed the keys to your brand new motor its value falls through the floor.
When you take out a van lease the residual value of your selected vehicle is calculated. This is the estimated value of the vehicle at the end of the agreed lease period based on the anticipated mileage during this time. This calculated residual value is then deducted from the manufacturers retail price and the remaining sum is divided up into monthly payments that you will pay over the lease period. So the higher the residual value as a proportion of the current value, the less you will need to pay each month.
Contract hire is a vehicle financing method that has maximum benefit for customers who are registered for VAT, so it is most suitable for businesses and the self-employed. If your vehicle is used exclusively for business purposes you can reclaim 100% of the VAT. Even if your van or van is used for some personal use you can still reclaim 50% of the VAT.
A contract hire agreement means that you have actually hired the selected van or van for an agreed period, usually between 1 and 5 years, during which time you will pay the agreed rental, based upon mileage. You will return the vehicle to your supplier at the end of your contract hire period, much the same as a van leasing contract. You will not encounter any painful surprise disposal or depreciation costs.
Van Contract hire can optionally include full vehicle maintenance which may include routine servicing and replacement tyres. Up to 100% of the rental charges can be offset against taxable profits and minimal capital outlay is required.
It’s therefore no surprise that contract hire is the favoured financing option chosen by many businesses and self-employed people.
I am often asked whether these types of deals are extended to pick up truck leasing or small van leasing, as opposed to just van leasing. The answer is yes, with competitive pricing available from Mark Williams.
For commercial contract hire I would recommend Mark Williams Vehicle contracts.