Using contract hire for company cars and vans

Company cars continue to be an essential employee recruitment and retention tool, and in many cases, along with light commercial vehicles, are critical to efficient business operations.

However, many businesses may be wasting money because they are not using the most efficient vehicle funding route, and thereby failing to maximise their hard-earned cash.

That’s why an ever-increasing number of companies are turning to contract hire to fund their company cars and vans.

Contract hire is the UK’s most popular fleet funding mechanism. Industry estimates suggest that at least 60% of businesses fund their vehicles via contract hire (exact numbers are not available) with possibly no more than a third – the vast majority being small organisations – opting for outright purchase and the remainder choosing to finance lease, contract purchase, lease purchase, hire purchase or utilise overdraft facilities and loans.

The commercial benefits of contract hire are underpinned by it being acknowledged as a straightforward, smooth and efficient way to run a fleet of company cars or vans, according to Days Fleet Managing Director Aled Williams.

Days Fleet, which manages more than 9,000 company cars and vans, is one of the UK’s leading independent vehicle leasing and fleet management businesses, offering a highly adaptable and flexible approach on fleet funding, servicing, maintenance and repair as well as a wide range of fleet management-related services.

Value for money and not price should be a prime criterion in contract hire supplier selection, alongside the supplier’s ability to deliver, their culture and their fit with the customer’s fleet.

While there is no “one size fits all” approach when selecting a vehicle funding route, contract hire is the most popular for ‘normal’ businesses with mainstream corporate tax and VAT positions. Additionally, those companies are typically cashflow conscious, averse to risk and, in many cases, have limited in-house fleet management expertise.

The key benefits of contract hire include:

• Benefiting from the purchasing power of a third party such as Days Fleet
• Companies being able to select their preferred lease period, typically three years / 60,000 miles or four years / 80,000 miles
• Fixed cost budgeted monthly vehicle costs
• No cash tied up in a depreciating asset as residual value risk is carried by the lessor
• Reduced vehicle and fleet administration as that is taken on by the providing partner
• VAT-registered companies being able to make a full reclaim on the finance element of the rental cost if the vehicle is used exclusively for business purposes – 50% on the finance element of the rental cost if a vehicle has dual business and private use; and 100% on maintenance costs irrespective of usage

Mr Williams said: “The success of contract hire is its simplicity. Companies pay a monthly fee over an agreed period of time and mileage and then return the vehicle at the end of its lease.”

What’s more, many companies choose to bolt on a maintenance package to the contract hire of the vehicle. That further aids fleet budgeting as it takes account of all routine maintenance and servicing bills.

Additionally, many businesses choose to rely on their selected vehicle leasing partner to deliver a range of other added value services.

In addition to maintenance management that might include a fully outsourced fleet management solution with companies benefiting from the in-depth knowledge and expertise of their funding partner in relation to, for example, accident management, short-term rental solutions and work-related road safety management.

Mr Williams concluded: “We look to work in partnership with clients to provide a bespoke solution for their individual needs from our extensive range of products and services with contract hire at the heart of the business relationship.”

 

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