Business Contract Purchase

Funder assumes risk

Business Contract Purchase is popular with:

Companies seeking to contract hire vehicles costing around £25,000 or more; often used for executive and directors’ cars or companies unable to reclaim the VAT. A development of hire purchase, business contract purchase is the only way for companies to buy vehicles without assuming any residual value risk. Contract purchase involves a leasing company guaranteeing that the vehicle will achieve a pre-agreed value on disposal at the end of the contract.

How Contract Purchase Works

Contract Purchase is effectively Contract Hire with minimised VAT. The risk in the purchase is eliminated and monthly payments cover depreciation over a set period plus a funding charge, giving similar cashflow benefits to contract hire.

Advantages of Business Contract Purchase

• Contract purchase combines the tax advantages of outright purchase with the cashflow and operational benefits of contract hire.
• Contract purchase business car finance agreements can also incorporate a service agreement to include maintenance, temporary vehicles and accident management.

Disadvantages of Business Contract Purchase

• VAT not recoverable with contract purchase, unless the vehicle is for 100% business use.

Summary

The fact leasing companies can reclaim input VAT on contract hire cars significantly increases the threshold at which contract purchase becomes more tax efficient. Nevertheless, this can be a useful acquisition method for cars over £25,000.

Recently manufacturer support has begun to be granted to contract purchase which reduces the cost to the user.