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- Contract Hire Conundrum
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The Contract Hire Conundrum
Although chauffer companies running luxurious vehicles have traditionally gone down the outright purchase route, with the recent CO2 tax changes there are now clear benefits to contract hire which businesses should look at as an alternative.
As well as the tax advantages, contract hire also removes the financial risks associated with outright purchase and VAT is reclaimable on the vehicle price. Also, working with an established fleet supplier gives businesses a wider choice of vehicles, hassle-free maintenance and a package of safety options. One of the key benefits, however, is the peace of mind given through having expert support and advice to hand.
As with all business agreements though, contract hire should not be entered into without a full understanding of the exact costs that are involved. Managers should be aware of all cost elements up front, ensuring they don’t incur any hidden costs at any one point in the contract. The devil can be in the detail; so it’s important to gain a complete picture of the arrangements.
These days, with new tax laws based on carbon emissions, it’s important to set the choice of vehicle right. Businesses should look at working with a fleet supplier that embraces the whole-life cost approach. This method involves calculations based on NI Class 1A, fuel costs, insurance and the net tax position that takes into account a car’s CO2 emissions. There is still too much emphasis within companies to look at purchase price versus running costs, basing spend on monthly rental costs, not overall annual costs, failing therefore to cut long-term spend.
When entering into a contract hire agreement, businesses also need to be familiar with the BVRLA’s fair wear and tear guidelines which show the industry what type and level of damage will be chargeable at the end of a contract and therefore how to avoid it. Of course, the simplest way to avoid additional costs at the end of an agreement is prevention of damage and thorough regular vehicle maintenance and upkeep.