CONTRACT HIRE

The most popular choice for VAT registered and non-VAT registered companies that want minimum outlay and maximum control of costs, especially when the maintenance and relief vehicle options are included. With this VAT beneficial financing package, one regular rental payment covers all risks, including costs of depreciation and disposal, for an agreed period of time and mileage. Road Fund Licence is included, but roadside rescue, maintenance and relief vehicle provision are options that can be added and charged to the monthly rental.
The benefits of Contract Hire:

• Up to 100% tax deductible depending on cost of vehicle
• Low initial outlay
• Flexible contracts
• No residual risk
• No disposal issues
• Optional relief vehicle whilst yours is off the road
• Capital not tied up in a depreciating asset
• Off-balance sheet borrowing/accounting
• Fixed cost and optional maintenance
• VAT on rentals reclaimable
• Road fund licence included for the full contract length

FINANCE LEASE

Ideal for the VAT registered companies who want to handle the administration of their vehicles, and have the asset shown on their balance sheet. A VAT beneficial finance option where the hirer can choose to pay the entire cost over the agreed lease period, plus an interest charge, or pay lower monthly rentals during the lease period with a final payment based on the anticipated resale value of the vehicle.
The benefits of Finance Lease:
• Ownership at the end of the contract
• Fixed monthly costs
• Flexible contracts
• Low initial outlay
• Business capital not tied up in a depreciating asset
• VAT on rentals reclaimable
• Road fund licence included for the full contract length

CONTRACT PURCHASE

For companies with high value cars that would like the option to purchase the vehicles, but do not want any depreciation risks.

The customer acquires the vehicle by paying fixed monthly instalments with the asset being shown on the company balance sheet, and can either retain ownership at the end of the contract or hand the vehicle back.

The benefits of Contract Purchase:
• Low initial outlay
• Eventual ownership
• No residual risk
• Interest charges claimable against tax
• More capital to invest in your business
• Flexible contract
• Optional final payment
• Rentals allowable against tax
• Writing down allowance
• Fixed monthly costs
• No disposal problem
• Optional maintenance package
• Optional relief vehicle
• Road fund licence included for the full contract length

GUIDE TO LEASE JARGON

Agreement Period:
How long the deal takes

APR:
This stands for Annual Percentage Rate and it’s the simple way to compare one deal with another: the lower the APR, the cheaper the loan.

Balloon Payment:
A large one-off payment made at the end of some contracts.

'B.I.K' - Benefit in Kind:
This is the company car tax. If an employee has a vehicle given to them by their employer they have to pay tax from their personal salary. As of 6th April 2002 it is based on the P11D value, the amount of CO2 emissions and how much they get taxed from their personal salary, (23% or 40%).

Base rate:
The interest rate that finance houses use to calculate interest on loans. When general interest rates change, the base rate normally changes too.

Car downtime:
When your car is off the road for servicing or repairs.

Car uptime:
When your car is on the road and you can use it.

Contract amendment:
If you change the type of finance deal, the time limit, or the mileage limit during the deal, this is called a contract amendment.

De-hire:
When your car has reached the end of the deal and is no longer on hire.

Depreciation:
The amount of value your car loses as it ages.

Early termination:
Cancelling the contract before it is due to end.

Effective rental:
Applies to Contract Hire/Finance Lease. This is the bottom line figure a company will pay on a monthly rental once they have claimed back their VAT. (That can be reclaimed)

Excess mileage:
When you exceed the mileage limit of your contract. You will be charged at a pre-agreed rate for every extra mile over the mileage limit (see “Pooling”)

Extension:
A formal agreement to extend the length of the contract.

Final payment:
The last payment of the contract. (See also “Balloon payment”.)

Delivery Charge:
A charge for delivery of your Vehicle from the manufacturer to the supplying dealership.

GAP insurance:
GAP stands for Guaranteed Asset Protection. If your car is written off or stolen, your car insurance will pay out the car’s market value. That payout can fall short of the amount you still owe on the finance deal. GAP insurance covers that shortfall by paying out the difference.

Initial payment:
Sometimes called IP, this is a payment you make before the car is delivered.

List price:
Cost of the vehicle in the manufacturers' price list. Usually shown on quotes including VAT. This does not include any extras, delivery, RFL, etc…

Minimum guaranteed future value:
Also known as MGFV and, sometimes, as guaranteed future residual value. It is the lowest amount that your car is guaranteed to be worth at the end of a contract purchase agreement.

P11D Value/Tax list price:
This is the total value of the vehicle in the eyes of the taxman. This price should include any accessories, first registration fee, 12 months VED (Vehicle Excise Duty) and 12 months RFL (Road Fund Licence), delivery charges and VAT etc.

Payment:
The amount payable on a purchase agreement (H.P, Lease Purchase, Contract Purchase). No VAT to be added.

Pooling:
A way of calculating excess mileage (see above(? Jo, what are you referring to?)) for a number of cars on the same fleet.

Rental:
The amount payable on a rental agreement (Contract Hire and Finance Lease). Always + (should something be in here?)VAT.

Residual Risk:
The risk that the vehicle will not meet its anticipated future disposal value.

Residual value:
The amount the car is worth at the end of the contract period.

RFL – Road Fund Licence:
Road Tax

Secondary rental:
If you want to keep renting the car once the original deal is up, you can arrange another deal. This is called a secondary rental.

Total OTR/On Road cost/Invoice Value:
Is the total price that the finance company will pay for the car including VAT & 12 month’s road fund licence.

Underwriting:
All companies wanting to proceed with acquiring a company vehicle will have to be underwritten in most circumstances even if they already have vehicles with them/us. The underwriters are looking to see if the company can pay the monthly amount and how reliable they will be at meeting this commitment. They view the risk as not only the monthly figure payable but also the total cost of the vehicle.

Uninsured recovery loss:
The recovery of costs not covered by your insurance.

VAT:
Value Added Tax

VAT Qualifying cars:
For a car to be used on Contract Hire or Finance Lease the car has to be VAT Qualifying. All brand new un-registered vehicles are VAT Qualifying. Not all used vehicles are VAT Qualifying; cars that have been owned by private individuals can never be VAT Qualifying. If you are sourcing a used vehicle for Contract Hire / Finance Lease always ask the supplier if it is VAT Qualifying. Good examples of VAT Qualifiers are ex daily rental vehicles; vehicles previously registered to a company or vehicles that have previously been registered to a Contract Hire / Finance Lease Company.

VED Vehicle Excise Duty (RFL Road Fund Licence):
All vehicles purchased on behalf of a finance company whether new or nearly new (ex fleet) should include 12 months VED/RFL.