The decision to purchase or hire equipment is a complex one with different factors affecting the decision in different businesses. It is important to consider the benefits of each option and get advice on which is the most advantageous for your business.
What is Contract Hire? A type of agreement where the title always remains with the hire company, offering tax benefits to the user.
If you require one fixed rental to cover both the finance and the maintenance of the equipment – to give fixed budgeting with no unexpected repair bills – then Contract Hire is the right option for you.
The agreement runs for a specific time period, usually five years (but in certain instances can be longer or shorter) and the equipment is collected at the end of the period, when a new truck can be supplied. A maintenance package is incorporated into one rental payment.
The rental payments can be fixed, or index linked, to suit your company requirements. Contract lengths can be tailored to suit your specific needs.
- All repair and maintenance costs are included (other than damage)
- No ownership worries
- Preserves working capital
- Contractually ensures the correct truck for your application
- Reduces the tax payable on profits
- Health and Safety issues around the asset are managed by professionals
- No risk of residual value of machine to you
- No asset disposal issues
This kind of agreement has the benefit of being classed as ‘off balance sheet’ and can reduce balance sheet gearing. Rental payments are 100% allowable against pre-tax profits.
If you wish to own your equipment outright, then Lease Purchase offers the same tax benefits as paying cash, but allows you to spread the cost over a number of years. Time periods and payments are agreed at the outset. At the end of the agreement, you retain ownership of the equipment. To comply with taxation requirements, the VAT for the whole contract must be paid in advance.