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Contract
Purchase is an ideal method of vehicle funding for non-VAT registered
businesses, as payments are not subject to VAT. However, businesses that
are VAT Registered will also find Contract Purchase offers a
particularly tax-efficient method for financing expensive cars.
Customers
have the opportunity to keep the vehicle at the end of the contract
period by paying a pre-determined 'Option to Purchase Price'. This price
is based on the vehicle's expected value based on the contract period
and annual mileage. Alternatively, the vehicle can be returned to the
leasing company.
Contract
Purchase offers all of the operational, managerial and administrative
benefits of contract hire, together with the tax-efficient benefits of
ownership, such as the ability to claim an annual writing-down
allowance.
Customers
choose the exact model, specify any options and choose the colour etc.
Both new and used vehicles (up to 12 months old) are available on
Contract Purchase, and agreements can range anywhere between 2 and 5
years, with the vehicles covering up to a maximum of 120,000 miles.
The key
benefits of Contract Purchase are:
- Fixed Monthly Rentals
A fixed
monthly payment is charged over the life of the contract and the initial
up front payment is normally equivalent to just three month's rentals.
Fixed costs make budgeting much easier. In turn more accurate budgeting
can help to improve cashflow.
- Final Option to Purchase Price
At the
end of the contract customers have the option to keep the vehicle by
paying a pre-determined 'Option to Purchase Price'. Therefore, if the
value of the vehicle is greater than the Option to Purchase Price
customers have the opportunity to sell or part-exchange the vehicle,
making a profit in the process.
Alternatively,
if the value of the vehicle is less than the 'Option to Purchase Price',
then customers can simply return the vehicle to the leasing company,
without making any further payments (apart from the normal charges for
excess mileage, or reconditioning, etc), Furthermore, this will protect
the customer from a negative equity situation, which can be a problem
with more traditional forms of vehicle finance.
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Fixed-Cost Maintenance
To
further help budgeting and aid cashflow, Contract Purchase is available
with a fixed-cost maintenance package. If selected, then an additional
monthly charge takes care of all servicing and tyre requirements as well
as any repairs. (Damage is the customer's responsibility).
Other
facilities can be included in the maintenance package, such as AA or RAC
membership and the provision of a loan vehicle in the event of the
contracted vehicle being immobile due to mechanical failure or accident.
Please
note, additional charges for maintenance are subject to VAT at the
prevailing rate. However, VAT registered businesses can reclaim 100% of
the VAT in the normal way.
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On Balance-Sheet Funding
Under
contract purchase, vehicles appear on a company's balance sheet as an
asset of the business. Therefore capital allowances are applicable, so
an annual writing-down allowance of 25% per annum (capped at £3,000 per
annum) can be off-set against taxable profits, in addition to all
interest charges and a balancing allowance (the difference between the
written-down value and the sale price) when the vehicle is disposed of.
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Reducing Financial Risk
Managing
the risks involved in running even a small fleet of vehicles is all
important, and that's exactly what businesses can do by opting for
Contract Purchase. The leasing companies take all the risks involved in
everything from residual values and maintenance to interest rates, which
simply leaves the customer with insurance and fuel costs.
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Reducing Administrative Hassles
As Key
Vehicle Solutions supply any make of vehicle and the leasing companies
arrange servicing and disposal, customer's paperwork and ongoing
administration is kept to a bare minimum.
<< Back to Business Customer Solutions
Quote Line: 0845 166 2405
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