For many people, one of the many joys of going on holiday is taking charge of a brand new, state-of-the-art hire car and enjoying a week or two of hassle-free, pleasurable driving. One disappointment of returning home, as unconscious as it may be, is having to go back to using one’s older, less comfortable car. Smart car users, however, have discovered a cost-effective way of bringing that luxury, care-free hire car experience into their everyday lives: contract hire car lease.

Just like hiring a car, contract hire enables the driver to have instant access to one of the latest vehicles on the market, with no worries about having to pay the road fund licence, and the backing of a full manufacturer’s warranty. Contract hire, then again, actually improves on standard car hire in the following ways. Firstly, the contract hire customer is able to choose any make, model and colour of vehicle, as if he or she were purchasing a car direct from the manufacturer. Secondly, the contract hire car lease customer is granted exclusive use of this same vehicle for the entire length of the contract period (usually three years). Thirdly, the monthly rates for contract hire are enormously favourable, since they are, for the most part, derived from the value of the car’s depreciation over the contract hire period, rather than on its total sale price when new.

One reason why vehicle leasing is so popular with many companies, is that there is so much scope for accounting and taxation incentives. These benefits vary according to the type of lease chosen, with some types of lease having more than one of these benefits. One of the most widely recognised incentives of vehicle leasing, is a business’s ability to reclaim at least 50% of the VAT due on each monthly lease settlement. This is a benefit applicable for VAT-registered businesses, which take out either a contract hire or finance lease agreement.

A second incentive is a business’s power to offset the leasing costs against corporation tax. For van leasing under a contract hire agreement, 100% of the monthly lease payment can be offset against corporation tax. For cars under the same contract hire agreement, the amount may be smaller, depending on the emissions from the car. For those organizations that prefer to keep their lease payments off the balance sheet (in order, for example, to reduce their official outgoings so that funds can be allocated to another area of the business), undertaking a contract hire agreement will provide the solution they seek. On the other hand, should a business feel it could benefit from including lease payments as an asset on its balance sheet (so as to attract finance, for example), a finance lease will be the answer.

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