Contract hire is a funding method whereby a company hires the vehicle for a specified period and makes regular payments for the duration of the agreement. The leasing company retains ownership of the vehicle and is responsible for the associated risks. At the end of the contract period the vehicle is returned to the leasing company.

Road fund licence is included for the duration of the contract; maintenance, roadside assistance and relief vehicle provisions are options that can be added and charged to the rental payment.

Contract Hire is ideal for VAT registered companies who may have a preference for off balance sheet funding with the potential to reclaim a proportion of the VAT element contained in the rental. Coupled to fixed cost and minimal fleet maintenance, this is the most popular choice for today’s business user.

The features and benefits of Contract Hire include:

1. Tax efficient – rentals allowable against corporation tax

2. VAT savings available

3. Residual value risk/reward carried by contract hire company

4. Vehicle collected at end of contract

5. Typically 2-5 year contracts

6. All makes of new & used cars/vans

7. Off balance sheet funding

8. Contract provided with or without maintenance

9. Rental calculated on an agreed mileage per annum

10. Fair wear and tear agreement for condition of vehicle on return

11 Excess mileage rate agreed at outset for mileage over agreed contract

12. Possibility to amend terms of agreement during it's lifetime to allow for changed circumstances

With fixed monthly payments, companies can budget over an extended period for each vehicle with an agreed mileage.

Company vehicles on Contract Hire, will not appear on your balance sheet as a depreciating asset. This is because the vehicle is treated as a rental rather than a purchase.

Benefits of contract hire

There are a number of varieties of leasing, but contract hire is the dominant type used in Ireland. Here are the main business benefits:

1. Fixed monthly costs

Contract hire is a fixed-cost form of motoring. For a set monthly payment, you get the use of a vehicle for an agreed duration and mileage that suits your business. The fee takes into account the vehicle’s price when hired, its forecast mileage during the contract and its estimated residual value at the end. As long as you have not exceeded the mileage and the vehicle is in a fair condition, you just return it at the end of the contract, with no further cost. For an extra monthly fee, you can ask your contract hire company to take care of nearly every hassle associated with car ownership, whether it is maintenance, servicing or replacement vehicles.

2. No risk

Most vehicles will lose value from the moment they leave the showroom. In a contract hire deal, you return it to the leasing company at the end of the contract period, and they take the residual value risk. If you include things like maintenance and servicing, you are also protected from any unseen rise in these costs.

3. Free up capital

Leasing a vehicle instead of purchasing it means you are not tying up capital in a rapidly depreciating asset. You can invest the money that you are not paying upfront in growing your business or reducing debts.

4. Off balance sheet funding

Vehicle leases do not have to be shown on a balance sheet, which will improve a company's liquidity ratio, gearing and return on assets.

5. Purchasing power

While your business may have a fleet of ten, fifty or even a few hundred vehicles, leasing companies are used to buying thousands each year. They can negotiate great deals with manufacturers and pass the savings on to you in the form of a very competitive leasing rate.