Contract Hire questions you should be asking

Contract Hire

What is Contract Hire?

The most popular option for the business user, contract hire offers fixed and inflation proof vehicle funding with optimum cash flow. Administration is kept to a minimum, company drivers have security and guaranteed mobility and the company receives the benefit of ‘off balance sheet’funding.

Tell us the vehicle you want at the annual mileage you require and we will tailor the package to suit your needs.  GCH 2000 will then acquire the vehicle for you and deliver it to any UK address of your choice.

At the end of the contract the vehicle is collected from you and your commitment ends.

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What contract duration and mileage allowances do you offer?

Contract duration can be from 24 – 60 months on all new vehicles and all of our quality used and pre-registered vehicles, to a total mileage allowance of 160,000 miles. This includes any mileage that may already be on our used vehicles.

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Who owns the vehicle?

Ownership of the vehicle remains with the finance company during the contract period. We can offer you a purchase price to buy the car from us as a third party after the contract terminates.

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Who insures the vehicle?

Responsibility for insurance is with you as keeper of the vehicle and this must be fully comprehensive.

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Who carries the residual value risk?

The finance company. This is one of the major benefits of Contract Hire. The finance company calculates a residual value at the time of quoting. If at the end of the contract the vehicle is worth less than originally expected, they are responsible for the loss.

The second-hand car market is very unpredictable, so why should companies risk their profits by gambling with an unknown vehicle sale price when they come to sell in two, three or four year’s time? Contract Hire companies have dedicated used vehicle disposal departments that are expert at predicting and achieving the very best prices for their vehicles at the end of the contract.

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Who carries the ongoing maintenance costs?

This depends on the contract selected. If a non-maintenance contract is chosen, the customer is responsible for all routine servicing and maintenance costs under the terms of the agreement.

Assuming a maintenance package is taken, the customer need never worry about any unexpected servicing or maintenance costs. A replacement bulb, a new tyre or a blown clutch is only a freephone call away from a quick, no-cost repair. This gives great peace of mind and allows the customer to run their business, rather than worrying about the running of vehicles.

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What is Non-Maintenance Contract Hire?

A Non-Maintenance Contract means that the customer is responsible for maintaining and servicing the vehicle as recommended by the vehicle manufacturer. However, the road fund licences are covered for the full contract period. Let us quote you!

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What is Full-Maintenance Contract Hire?

A Full-Maintenance Contract is where the supplier is responsible for maintaining and servicing the vehicle and includes all costs due to fair wear and tear. Additional facilities may be added to a Full-Maintenance contract such as AA cover and relief vehicle cover. Let us quote you!

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Is the vehicle cost on or off the company balance sheet?

Contract Hire guarantees that vehicles will be off the balance sheet. This has the following advantages:

  1. Reduced capital outlay
  2. Reduced company investment level, thereby increasing return on investment ratio This will make the company look a stronger performer in the eyes of investors, including, of course, the banks.

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Typically, how much cash is required up front?

A deposit of three month’s instalments is usually required. In certain circumstances, such as a new-start company, six month’s advance payment may be required.

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What about vehicle collection and delivery?

We arrange delivery and collection anywhere in the mainland UK.

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Who orders the car?

We undertake to source your vehicle from our contacts in the industry at full fleet discount, including any specific promotions/support available at the time. If, however, you have a local, preferred supplier, we would be happy to order the vehicle from them on your behalf.

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Do I own the vehicle at the end of the contract?

No! Ownership and the subsequent disposal responsibility remains with the finance company. If you do own the vehicle at the end of a contract, it means that you have to go through the inconvenience of disposing of it and arranging finance for your next vehicle.

GCH 2000 arrange collection of your old vehicle whilst delivering your new vehicle. Nothing could be easier. If a third party wishes to purchase your old vehicle this can also be arranged

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Can the monthly payments be offset in full against corporation Tax?

Yes. 100% of the monthly rentals may be offset against Corporation Tax. For vehicles costing over £12,000 a proportion is disallowed. To find exactly how much is allowable a simple calculation must be followed. This calculation is commonly known as the “Half the difference rule“.

12,000 + 1/2 (Cost-12,000) x 100%

For example, if a vehicle costs £15,000, this is how the calculation works.

12,000 + 1/2 (15,000-12,000) x 100%
= 90%
Firstly take 12,000 from 15,000 (cost) = 3,000
Divide this by 2 (to find half) = 1,500
Add this to 12,000 = 13,500
Divide this by 15,000 (cost) = 0.9
Times this by 100 to find the percent = 90%

Please note that vans are full tax efficient and so are not subject to this equation.

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Are there any VAT advantages to Contract Hire?

Businesses can recover the VAT payable on the purchase of cars only if they are wholly for business use. Any home-to-office travel means that the vehicle does not qualify as “wholly for business use”.

The finance company can recover all VAT payable on vehicles purchased, as they are purchased wholly for business use, regardless of the end user’s use of the vehicle, which is where the major cost savings lie.

If there is private use of a car by the end user, then 50% of VAT on the finance element and 100% of VAT on the service element of the contract can be reclaimed.

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What happens if I want to terminate the contract early?

If you wish to end the contract early a termination charge is payable. Typically, this is 50% of the outstanding monthly rentals payable.

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What are the end of the contract options?

The customer has three options available at the end of the contract period.

  1. Hand the vehicle back and replace with a new one.
  2. Extend the contract for a six-months, or 12 months, usually at a reduced rate.
  3. Ask for a purchase price and purchase as an individual. (The company cannot purchase the vehicle due to the tax advantages that have already been enjoyed.)

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Are there any hidden costs?

Charges are possible for two reasons:

  1. If the vehicle has done more miles than contracted. This is the excess mileage charge, which will be written on the contract and will vary from vehicle to vehicle. To avoid this charge we advise customers to contact us during the contract if they feel that more or fewer miles than originally expected are likely to be done and we will amend the contract accordingly.
  2. The only other charge would be if the vehicle had been damaged and not repaired.

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