So how does it work? A company chooses a brand new vehicle, pays an initial deposit and then continues to pay for the car or van in fixed monthly instalments. With a contract purchase agreement, the monthly finance payments are not subject to VAT. At the end of the contract, the company has the option to purchase the vehicle at an agreed price.
NB: Nationwide Vehicle Contracts are specialists in Contract Hire and Personal Contract Hire agreements. While Business Contract Purchase agreements are no longer available with Nationwide Vehicle Contracts, it is important that you review the benefits and exclusions of every lease contract to better understand which agreement is best suited to your needs.
How could it work for your business?
If your company leases a vehicle on a contract purchase basis, you will pay for the vehicle in monthly instalments for a contract of 24 or 48 months, for example.
At the end of the contract, the company or driver can then purchase the car for a predetermined amount – known as a balloon payment – as long as the terms of the initial agreement have been met.
Contract purchase is ideal for businesses that like to run high value vehicles and don’t want to have to worry about the risk of depreciation.
If yours is a VAT registered company, you will not have to pay VAT on the monthly finance payments. It’s worth noting, however, that if you take out an optional service or maintenance package, VAT is payable on the service costs.