Finance Options
Brief Guide to Finance Options
Contract Hire - A popular choice for VAT Reg. companies
A low deposit followed by fixed all-inclusive monthly rentals is normal. Contract Hire enables companies to release cash which would normally be tied up in purchased vehicles, then use the money to invest in and operate the core business activities.
The low monthly payments attributed to Contract Hire are due to AutoDrive passing on manufacturer and dealer discounts to the customer. The finance provider will re-claim the VAT on the new vehicle, all these benefits and inclusions are reflected in the Contract Hire agreement in the form of low monthly rentals.
At the end of the of the contract - after an inspection and subject to the terms & conditions, the vehicle is returned to the provider without further obligation to either party. The vehicle stays "off balance sheet" and hence it should not effect the user /operator’s credit position.
Benefits
- Low initial outlay & flexible rental terms
- A new fleet - projects corporate image
- Fixed monthly costs which can include a suite of services
- Release of capital enables investment into core business
- Off-balance sheet borrowing
- No depreciation risk or disposal problems
- Reclaim 100% of VAT on rentals (only 50% if some private use)
- Outsourcing transport management reduces costs
Chris Robinson of Flexsys (UK) Ltd is just one of Autodrive´s satisfied customers. He took a Mazda 6 on a 3 year Contract Hire basis in June.
I was due to replace my car and AutoDrive investigated the options and models available. I enjoyed my previous Mazda and we agreed that Contract Hire made more sense: if we bought outright I would need to pay much more or a large deposit. With these regular monthly payments I’ve got the car I wanted for just over half the retail cost and I will be ready to replace it in 3 years anyway. This simply takes away any disposal problems.
I’m very happy with the deal I got and have already referred AutoDrive to friends and colleagues of mine - they are amazed by the value for money I got
Neale explains: Contract Hire is essentially an operating lease which enables company car drivers to have a new vehicle of their choice on a fully inclusive basis.
Maintenance can be included as part of the contract, leaving only fuel and insurances to be considered as extras. Because you are hiring the vehicle rather than buying it, you simply hand it back at the end of the contract with no disposal worries. Contract Hire is a very tax efficient method of funding a business vehicle.
Finance Lease...a brief guide
All finance methods fall within two categories: Owning (On Balance Sheet) or Hiring (Off Balance Sheet). Finance Lease is a HIRING method.
Finance Lease is ideal for customers who want to have all the benefits normally associated with owning a vehicle whilst maximising tax efficiencies and minimising the initial outlay ie. LOW DEPOSIT!!.
Importantly, you should note that, for income tax purposes, Finance Lease is still classed as a hire agreement, which means that you can get 100% tax relief on your payments to offset against your taxable profits.
With Finance Lease, you pay VAT monthly and claim it back quarterly.
You simply have to agree a monthly payment and contract period, which can include an acceptable final payment, often called a "Balloon" or "Terminal Rental". Payments are made monthly by Direct Debit throughout the contract term.
Finance Lease is very flexible, at the end of the contract you have several options:
- It is your responsibility to sell the vehicle to a third party then use the sale proceeds to make the final balloon payment, if one has been included. Any sale proceeds over and above the balloon are profit, which is shown on your books, therefore taxable.
- Most AutoDrive customers however, choose to part exchange the vehicle and take delivery of a new one, you retain 95% of the part exchange value. This allows you to use any surplus monies as your deposit on the new car
- Alternatively you can keep the vehicle for as long as you want as long as you pay an annual nominal sum called a peppercorn rental to the leasing company. Even this payment is 100% allowable against taxable profit.
Dave Winterbottom of NWCC Handling Ltd chose a Citroen Berlingo van from Autodrive on a Finance Lease basis. Dave confirms:
I consulted my accountant and we discussed the best way for my business to finance this purchase. After speaking with Neale from AutoDrive he came back to me with a few ideas on the best makes and models for my needs, they sourced the van and the deal was completed extremely quickly. I was impressed by how speedily AutoDrive arranged this for us and would definitely use there services again.
Personal Contract Hire - a brief guide
There are many reasons why individuals are joining business users by leasing or Contract Hiring their vehicles. In the past few years many individuals have opted out of their companies car scheme and are now taking a car allowance to provide their own vehicle for work and leisure.
If you are self- employed and need a car for personal use, or you are opting out of your company car scheme this will probably be the right option for you. AutoDrive’s aim is to make the supply and maintenance of personal cars & vans as simple and cost effective as possible - whatever make or model you require, new or used.
PCH is a Contract Hire agreement for private Individuals - It works in exactly the same way as Contract Hire works for companies with the exception of the VAT element. VAT registered companies can reclaim the VAT whereas with Personal Contract Hire it’s built into the monthly payment.The low cost monthly rentals can also be written down as an operating cost for the Self Employed or Sole Traders.
The Initial deposit is usually low - normally equivalent to three monthly payments. The monthly rentals are calculated and are based on the forecasted residual value, age and mileage of the vehicle. A pre-determined excess mileage charge will be agreed at the outset and then if applicable re-charged to the user at the end of the Hire Contract, after inspection and subject to the terms & conditions of the contract, the user then simply hands the car back to the underwriter with no further obligation to either party.
Benefits of Personal Contract Hire
- Low initial deposit
- Fixed Monthly rentals
- Service & Maintenance, Insurances and RFL etc. can be included
- No depreciation & disposal issues and worries
- Flexible terms to suit individual needs
Lisa Riddall from LJR Lifestyle is another of AutoDrive´s satisfied customers. As a self employed personal trainer she needed a new car and chose a Mazda 3 on a 2 year Personal Contract Hire basis. She explains:
One of the main benefits is that Neale is very approachable and informative. Suprisingly, AutoDrive still compared very favourably to other deals quoted to me by much larger organisations, even when I shopped around on the internet. I will definitely consider renewing my Contract Hire deal with AutoDrive in the future.
Contract Purchase...a brief guide
Contract Purchaseprovides the same operational benefits as Contract Hire, the main difference being that the vehicle is on balance sheet.
In the same way as in Contract Hire, the terms of the contract are based on age and mileage, which in turn will establish the residual value or balloon payment. This figure represents the underwriters opinion of what the vehicles value will be at the end of the agreement.
As with Contract Hire you have a low deposit and an attractive monthly rental with the option to include services for eg. a maintenance package. Contract Purchase is available for both new and used cars. At the end of the agreement you have three main options.
- Make the Balloon Payment in full and take ownership
- Return the vehicle to the provider with nothing else to pay
- Re-negotiate to extend the existing contract or use equity as deposit on a new car
Your monthly payments are allowable against tax, you are also allowed to reclaim VAT on the maintenance element. Personal Contract Purchase can be a good option for people opting out of the company car scheme, you can utilise your company car allowance to settle your Contract Purchase payments without having to pay company car tax.
Attractive deals usually depend on the make & model of car.
Benefits of Contract Purchase
- Low initial deposit
- Fixed monthly payments
- Writing down allowance
- Interest charges can be offset against tax
- Low risk on residual value
- Optional final payment
- Alternative credit line
Outright or Hire purchase
Outright or Hire Purchase still commands a large share of the market, only because it is one of the original methods of funding vehicles and people in the UK are still reluctant to change. Outright or Hire Purchase finance options are available from AutoDrive to those who wish to purchase their vehicles outright. This finance facility will attract people who choose to pay larger deposits and also wish to finance the car over a longer agreement, sometimes up to 60 month terms.
Hire Purchase will still be an attractive option for certain businesses who are not VAT registered and who want their cars to appear as assets in their company accounts. In addition the vehicle can be written down for taxation purposes and all interest charged can be reclaimed. Attractive deals will be dependant on what make & model of car and also any residual value movements.
