Contract hire and leasing
Page 28
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WE REFER to a report headed "Contract hire will replace leasing" (CMJuly 7).
While we appreciate that the report was compiled by an outside study group, and the context may have been lost in your interpretation of its content, we must emphasise that in its presented form the article was both inaccurate and misleading.
As a leading specialist in commercial vehicle contract hire and leasing, we are concerned that the facts relating to both methods of vehicle acquisition should be fully and accurately explained especially in view of the changes proposed in the latest Budget.
Undoubtedly, many vehicle operators do not yet fully understand the proposed financial implications and having read the article they could well reach the wrong conclusion.
It is of paramount importance that the position relating to tax allowances on both contract hire and leasing be understood. The report states the lease rental tax allowances will be reduced until 1986, when they will cease altogether. In truth lease rentals are classified as a normal trading expense and are therefore 100 per cent allowable in this way. The Budget did not offer any proposals to change this situation.
The proposals made in the Budget relate to first year allowances, which prior to March 14,1984 stood at 100 per cent, and it is these allowances that will be reduced to nil by April 1, 1986. This factor will seriously affect the buyer who normally purchased commercial vehicles at the end of his financial year in order to gain tax allowances and reduce his corporation tax liability. It is to this market sector that leasing with its fully allowable rentals, will almost certainly appeal.
From a taxation point of view there is no difference between leasing and contract hire, both being allowable as a normal trading expense, and quite easily understood when it is remembered that contract hire is nothing more than leasing with a maintenance attached.
From our own professional surveys we are predicting a significant rise in both leasing and contract hire over the next five years, with leasing having a greater appeal to the vehicle operator who has his own servicing facilities or prefers to separate capital finance from operational finance.
Contract hire, because of its content, will obviously be a more expensive method but will attract clients who wish to leave the running of 'their' vehicles to outside contractors.
Commercial Motor has the ear of the vehicle operator and is trusted by all as a factual and honest carrier of news and facts.
I do trust that this serious and far reaching error can be rectified and a more meaningful report be obtained.
J R BIDMEAD
Director, Spencer, Abbott (Fleet Services), Aston, Birmingham.