You might be contemplating buying a new car for your company car pool, or instead you may be wondering around a contract hire leasing vehicle. So, what are the reasons for going for contract hire leasing vehicle over buying a new car?
Purchasing a new car does, at first, seem the sensible option. After all, your payments supply an asset that you, or your business, will own.
Vehicles Decrease in value Very Quickly
But the difficulty with purchasing cars is that unlike property, they devalue over time. Merely driving the car out of the sales room devastates the value and the investment. So, is contract hire and leasing a suitable alternative?
For a start, contract hire will protect your business against that reduction that hits brand new vehicles. But obviously, you are still paying more than the long term for the vehicle.
First, The Tax Benefit
But as the car, or van, is being paid for on a monthly lease instead of being bought outright, you can then put the entire amount of expenditure down on your balance sheet as costs rather than slowly writing off the cost of the vehicle in excess of some years. So, contract hire offers a tax benefit.
Fair maintenance of the car might be included in the monthly premiums, if required. This means that you know from the outset the exact cost of the vehicle that you are acquiring and are not hit by sudden, unexpected bills. Even the road fund tax could be included in the contract.
As well as including maintenance, the monthly cost of hiring the vehicle is fixed, rather than subject to interest rates varying on a loan. Yet another reason why you are able to budget for the exact price of the vehicle rather than having to second guess what your bills may be this time in a year or two.
Less Taxes On The Charges
Also, the supplier of the vehicle is able to reclaim the VAT on the acquisition of the vehicle initially, meaning that the price to them is lower, which in the competitive market that we are seeing at the moment means that there is a price saving that they have to pass on to you, the end buyer.
Calculating Your Premium
So how is the cost of the contract hire and leasingcalculated? Not an simple calculation, but not too difficult. The cost of the vehicle to be bought from new is taken as the starting point, less the included VAT that will be recovered. Then the expected depreciation on the vehicle for the duration of your intended hire is worked out, based on the purchase price, the length of hire and predicted mileage.
In short, this depreciation plus interest charges and any optional extras is what the total cost of your contract is going to be, which is divided over the number of months that you intend to have the vehicle.
Obtaining your next company vehicle through contract hire could be merely what you need to reduce the costs whilst increasing the security of the knowledge of exactly what the outlay should be.