Business Contract Hire

Understanding Contract Hire: An Operating Lease Model

Contract Hire is a leasing, more accurately called an operating lease. In this arrangement, the lessor rents the asset from the lessee rather than leasing it outright.

The Origins of Contract Hire

AVC believes that the concept of contract hire originated in 1972 with the establishment of Cowie Contract Hire. This public company recognized the need for business car fleets to evolve beyond traditional lease agreements. Consequently, it developed a new funding package that provided tailored vehicle leasing and fleet management solutions. This innovative approach offered comprehensive support for businesses managing vehicle fleets, including maintenance, insurance, and administrative services, effectively mitigating the risk of vehicle depreciation.

By the end of the 1980s, demand for contract hire surged, making it the preferred funding method for company vehicle fleets in the U.K.“Contract hire is still popular with company car drivers, especially for low-emission vehicles that are more benefit-in-kind (BIK) friendly.

AVC notes that by mid-2025, contract hire will remain a preferred funding option for company cars and business fleets. However, with increasing benefit-in-kind (BIK) taxation, many company car drivers are opting out of traditional company car schemes. Instead, they are turning to Personal Contract Hire or enrolling in company salary sacrifice schemes that still provide lower company car benefit in kind taxation for those embracing the electric car transition.

Benefits of Business Contract Hire

• The financial structure of Business Contract Hire presents several advantages, including affordable and fixed monthly payments that enhance financial planning.
• For VAT-registered companies, an additional perk is the ability to reclaim 50% of the VAT on the monthly rental and 100% on any service and maintenance packages included in the contract. These packages cover most motoring expenses, excluding fuel and insurance, simplifying budget management.

The Advantages of Contract Hire with Maintenance.

• The primary benefits of contract hire include fixed-cost motoring, which encompasses comprehensive maintenance and fleet management services for larger users. When considering adding complete maintenance to your leasing package, remember that inflationary price increases have impacted vehicle maintenance and servicing costs, along with most other items.
• Including these expenses in your package can be a more economical option.
• This approach helps you avoid unexpected bills.
• It also ensures that vehicle servicing and aftercare align with the manufacturer's recommendations, avoiding unexpected end-of-lease return vehicle costs.

Since 1997, AVC has specialized in contract hire and leasing. Contact us today, and let us develop a personalized contract hire or salary sacrifice proposal just for you!