Contract Hire (sometimes known as an Operating Lease) is a long term rental agreement. These contracts range from 12 to 60 months and are tailored to the businesses requirements.
The Contract Hire Company will reclaim the VAT on the original purchase which then reduces the monthly rentals (which are + VAT). Contract Hire is an extremely popular choice for VAT registered companies because they can claim back 50% of the VAT on the finance elements for cars and generally 100% for commercial vehicles (However, this is subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme). On contracts with maintenance the VAT on the service element is 100% recoverable. One of the major benefits is that there are no disposal worries as the future value is underwritten by the leasing company. Another of many benefits of Contract Hire is that it is generally “off balance sheet funding” while subject to legislation change. This means it can improve your assets to borrowing ratio and therefore possibly your borrowing ability in the future.