Contract Hire for Sole Traders
What it is in plain English
Contract hire for sole traders is a long-term vehicle leasing agreement that allows you to drive a brand new van for your business without the commitment of ownership. You pay a fixed monthly fee for the use of the vehicle over a set term and mileage limit, returning it to the lender once the contract expires.
How it works step by step
The process begins by selecting the specific van model you require for your business operations. Once you define your annual mileage requirements and the desired contract length, the lender calculates a fixed monthly rental based on the vehicle's projected depreciation. After signing the agreement and paying your initial rental, you take delivery of the van and make regular payments throughout the term. At the end of the contract, you simply return the vehicle, avoiding the risks associated with resale values.
What you pay and what is included
You typically pay an initial rental followed by fixed monthly payments, which cover the depreciation of the van during your usage period. Because contract hire is a pure rental agreement, many packages include road tax for the duration of the term. You are responsible for insurance, fuel, and all maintenance costs, though some agreements offer optional maintenance packages that roll servicing and tyre replacement into your monthly invoice to help manage your cash flow.
Who it suits and who it does not
This solution suits sole traders who prefer driving newer, more reliable vehicles and want predictable monthly overheads without the administrative burden of selling a used van later. It is ideal if you value keeping your fleet modern to maintain a professional image. However, it does not suit those who exceed their mileage frequently, as excess mileage charges apply, or those who wish to own the vehicle outright at the end of the lease.
Questions to ask before you sign
Before committing to a contract, you must clarify how the lender handles excess mileage and what the specific penalties are for return conditions, such as damage beyond fair wear and tear. Ask about the flexibility to adjust your mileage limit if your business needs change mid-contract. Additionally, verify whether the agreement allows you to exit the contract early if your business circumstances shift unexpectedly and confirm exactly what is covered under the maintenance policy if you choose that option.
Frequently asked questions
FAQs
Can a sole trader use contract hire and what do they need? Yes, sole traders can use contract hire. To apply, you will typically need to provide proof of identity, evidence of your trading status such as a HMRC registration or tax returns, and details regarding your business turnover to satisfy the lender's credit check requirements.
Is contract hire better than buying a van? Contract hire is often better if you want to avoid vehicle depreciation risks and enjoy lower monthly payments compared to buying. It is not better if you want to keep the asset on your books or if you prefer to have no mileage restrictions.
Do I need VAT registration to lease a van? You do not necessarily need to be VAT registered to lease a van, but it is important to note that all contract hire quotes are typically displayed excluding VAT. If you are not VAT registered, you will need to account for the additional VAT cost on your monthly payments.
What happens if I go over my agreed mileage? If you exceed your annual mileage limit, you will be charged a pre-agreed "excess mileage" fee for every mile driven over the limit. This is calculated at the end of the contract, so it is important to estimate your needs accurately from the start.
contracthire.tv is a trading name of Swiss Vans Ltd, authorised and regulated by the Financial Conduct Authority (FRN 668283) as a credit broker, not a lender.