Funding
Solutions
Contract
Hire, Contract Purchase, Lease Purchase, Outright Purchase,
Hire Purchase, Sale and Leaseback. Personal Contract Hire,
Personal Contract Purchase.
Contract Hire
This is
popular with those companies who are able to reclaim VAT,
although if the vehicle has any private usage only 50% of
the VAT on the finance element of the rental can be reclaimed.
Advantages:
- Off
balance sheet funding.
- Fixed
monthly payments which can include service and other maintenance
costs.
- No
financial risks as the residual value risk is borne by the
lessor.
Contract Purchase
This allows
companies to buy vehicles at the end of the predetermined
contract period without assuming any residual value risk.
Again this can include service and maintenance cover.
Advantages:
- Has
the tax advantages of Outright Purchase and the operational
benefits of Contract Hire.
- Customer
can claim capital allowances.
- No
vat on capital and interest payments.
Lease Purchase
This is
more suitable to small businesses who may not be able to afford
high initial business costs. It also is useful to companies
who are unable to fully reclaim VAT. However, the residual
value risk lies with the lessee.
Advantages:
- Smaller
front end deposit and lower monthly payments.
- Fixed
monthly payments.
Hire Purchase
This again
is suitable for small companies. An initial deposit, usually
in the order of 20%, is payable followed by an agreed number
of monthly instalments to repay the capital and the cost of
funding. The residual value risk lies with the hirer rather
than the funder.
Advantages:
- Customer
can claim capital allowances.
- Interest
payments tax allowable.
Outright Purchase
This is
popular with large organisations and those who are 'cash rich'.
The maintenance and residual value risk lies with the operator
although vehicle purchase and disposal along with maintenance
management can be administered via a third party fleet management
company.
Advantages:
- Flexibility,
vehicles can be bought and sold as required with no early
termination penalties.
- Low
funding costs.
- Capital
allowances can be claimed
- Vehicles
on balance sheet.
Sale and Leaseback
Popular
with companies who outright purchase their vehicles but would
like an injection of capital into their company, usually for
investment in core activities.
Advantages:
- Immediate
cash injection into the business.
- Vehicles
removed from the balance sheet.
- The
vehicles can be operated on a Contract Hire arrangement
with all the associated benefits including, if required,
a service and maintenance package.
- Reduced
administration.
Personal Contract Hire
This option
gives an individual fixed monthly rentals with no residual
value risk as the vehicle is returned to the lessor at the
end of the contract. It avoids any benefit-in-kind taxation.
A maintenance contract is usually compulsory with this scheme.
Advantages:
- Fixed
monthly rentals.
- No
residual value risk.
Personal Contract Purchase
Similar
to personal contract hire accept that the lessee has the option
to purchase the vehicle at a price specified at the outset
of the agreement. This scheme is usually more expensive than
Personal Contract Hire.
Advantages:
- Fixed
monthly rentals.
- Option
to purchase the vehicle at the end of the contracted period.
View
Funding Solutions Matrix
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