What is Contract Purchase?
This method of funding is ideal for companies who cannot fully reclaim VAT and is particularly suitable for financing the more expensive cars on the fleet.
It was introduced to alleviate the burden of companies who were unable to reclaim the VAT on their monthly payments, and to overcome the cost of the Corporation Tax implications for cars costing more than £12,000.
The big difference between Contract Purchase and Contract Hire is that you have the opportunity to buy the vehicle at the end of the contract period. You will be faced with paying a 'balloon payment' at the end of the contract which makes you the legal owner of the vehicle or alternatively you can return the vehicle to First Sterling Finance.
If your company is restricted in the amount of VAT it is able to reclaim, or you have several expensive (typically in excess of £25k)* cars in your fleet, it may make financial sense to retain ownership of your vehicles. This, however, exposes your business to all of the risks inherent in administering, maintaining and particularly disposing of a fleet.
Contract Purchase offers all the operational, managerial and administrative benefits of Contract Hire, together with the tax-efficient benefits of ownership, such as the ability to claim capital allowances.
Your company enters into a finance agreement for the vehicle for a pre-determined period at a fixed monthly rate.
You have the option to buy the vehicle when the contract is up by making a final 'balloon' payment, agreed at the start of the term. Alternatively you can return the vehicle to us, sharing in any sales profits but with nothing further to pay should we sell the vehicle for less than the balloon payment.
The single, fixed monthly payment takes into account the cost of the car, its rate of depreciation, the length of the contract, mileage and any additional services you may wish to build in.
The majority of our customers choose to include maintenance cover, with full RAC breakdown and recovery service, keeping their drivers on the road without involving the company in complex or costly administration.
- on balance sheet funding
- tax-efficient for vehicles over £23,000
- fixed repayments
- no VAT attracted to rental costs
- removes uncertainty of residual value fluctuations
- reduced administration
- support services are available including fuel cards, Accident Management, and full Breakdown Recovery
Contract Purchase could be a more effective way to finance your fleet if your company cannot fully recover its VAT. It is also cost-effective for fleets that can recover their VAT but operate cars costing in excess of £23,000. This form of vehicle funding provides all the benefits of
Contract Hire, but gives you the option to own the vehicle. At the end of the contract period you can choose to keep the vehicle, dispose of the vehicle or sell the vehicle back to us avoiding any depreciation risks.
