Glossary of Terms

Funding Methods:

• Contract Hire
  Off balance sheet operating lease with fixed monthly costs that often have maintenance factored in. The rates are based on the predicted annual mileage the car will cover and end of term excess mileage charges could apply. The car remains the property of the leasing company and is returned at the end of its lease.
• Outright Purchase
  Involves the purchase and generally the management of the car by the company. Because it owns the car the company runs the risk of the residual value when it comes to disposal. Not a popular form of funding as companies generally cannot justify tying up significant sums of money in depreciating assets.
• Finance Lease
  Vehicles are leased for a fixed period, after which fleets can sell them, continue to use them and pay a reduced or peppercorn rental or hand them back to the leasing company. The company is usually responsible for maintenance costs. Normally there is a final or “balloon” payment due at the end of the life of the lease. Any profit or loss on the sale of the vehicle is with the lessee.
• Contract Purchase
  Fixed monthly instalments are followed by a final figure to purchase which the customer may choose not to pay and instead, simply return the car to the lessor. Maintenance is often factored into the monthly figures. Classed as a purchase plan there is no VAT on the monthly payments but equally the VAT remains on the original price of the car when it is financed.
• Sale and Leaseback
  When a company owns its cars it may wish to sell them to a leasing company in order to lease them back. Several reasons for doing this could include the need to generate cash, a desire to remove the cars from the balance sheet to strengthen it, in order to secure funding for other projects, or simply a change of strategy to remove the admin burden from the company and outsource the supply, management and disposal of the fleet.
• Employee Car Ownership
  ECO or PCP (Personal Car Plan) moves car or lease ownership from the employer to the driver. The operational benefits are similar to those available with a company car but the employer pays the driver a budget toward the finance, maintenance and insurance of the car, rather than supplying the usual company car package. As the car is the employee’s it entitles the employer to use AMAPs to part or wholly fund the car, at the same time as saving on National Insurance Contributions tax.
• Hire Purchase
  A purchase plan normally involving a large deposit followed by regular monthly instalments. The purchaser is responsible for maintenance and eventually disposal and therefore runs the risk of the residual value.
• AMAPs
  Approved Mileage Allowance Payments. Payments the government allows an employer to pay an employee tax and NI free for use of their own car on company business. This is 40p per mile for the first 10,000 miles and 25p for every mile thereafter.
• Mixed Fleet Funding
  Where an employer offers drivers the choice of more than one funding option and furnishes them with enough information to allow them to make an educated choice. Mixed fleet funding is employed where the company wishes to offer its drivers choice and value for their car benefit at the same time as ensuring total tax efficiency and cost effectiveness.
• Cash Allowance
  Simply where the company “buys out” the company car provision by paying the drivers an allowance for them to source their own cars, maintenance and insurance. The company may use AMAPs to part fund the Cash Allowance or simply leave it to the employee to claim the difference between the total AMAP value and the fuel payment against their tax.
• Advisory Fuel Rate
  The amount the government allows a company to pay an employee per mile of fuel used for business purposes without incurring tax and NICs .