Finance Lease
A popular, flexible method of funding a broad spread of business assets. Finance Lease offers all the practical benefits of ownership without any of the potential burdens.
Key features and benefits
The flexible repayment structure gives you immediate and full use of the asset for a minimal outlay.
Businesses can normally offset rentals against their taxable profit. Asset treated as ‘on-balance sheet’.
Rentals can be set according to your cash flow – especially beneficial if your business is seasonal.
You pay VAT on the rentals, not on the purchase price.
The Lessor, as the owner of the asset, claims writing down allowances, and these are reflected in the rentals you pay.
Typical assets: Virtually all types of vehicles and business equipment.
Frequently Asked Questions
Can I claim any tax allowances?
As owners, the Lessor claims the appropriate writing down allowances and these are reflected in the rentals you pay. You should be able to offset your rentals against taxable profits. If in doubt, consult your auditors.
Can I claim the VAT charged on the rentals?
If you’re registered for VAT, you can usually reclaim the VAT paid on rentals for commercial vehicles.
What happens at the end of the agreement?
Three options are available at the end of the primary period:
- Continue with a second rental:
You can continue to lease the asset for a further period, paying a nominal annual rental. The further period normally lasts the useful life of the asset. We will supply you with a more detailed quotation near the end of the agreement.
- Sell the asset to a recognised dealer:
You can sell the asset to a recognised dealer at its current market value. The sale proceeds will be credited to your agreement, and the Lessor will refund you 95% of that amount.
- Trade in the value of the asset against a new one:
Most finance houses will accept the current market value of your asset as a trade-in toward financing a new one. This has the effect of reducing the monthly rental on the new deal and improves your cash flow.
Sale-and-leaseback (also called purchase leaseback). You sell an asset you already own to the leasing company for fair market value or book written down value (whichever is less) and then lease it back.
In both cases, the lessor owns the asset, not you, and rents it to you. As with any other rental agreement, you return the asset at the end of the lease to the lessor. Some leases grant you an end-of-lease option to renew the lease at a minimal cost (secondary period) or to sell the asset to a third party as agent of the lessor.
Often equipment manufacturers themselves act as lessors or have an affiliated leasing company. This allows them to more easily help their customers finance transactions. The other two groups of lessors are banks and independent leasing companies.
