Leasing
Summary
Leasing is really the rental of a business asset over a fixed period of time. For vehicles it is an alternative to contract hire and Hire Purchase and comes in two forms:
1. Finance Lease
2. Operating Lease
For tax purposes leasing is still classed as a hire agreement and as such you receive 100% relief on your payments to off-set against your income.
You need to agree a monthly payment and contract period for the asset which will include a final payment. The size of the termination payment or balloon payment will obviously influence your monthly instalments.
There is more flexibility in leasing than there is in contract hire and should you wish to exit the agreement the penalties are not so harsh.
At the end of the contract you have a number of options. You can chose to part-exchange your asset for another and continue a leasing agreement. Alternatively you could keep the asset for as long as you want and pay the leasing company a nominal sum called a “peppercorn rental” on a monthly basis.
With an Operating Lease you would lease the asset and use it for a certain period of time. Once that time had elapsed the asset would return to the lease company. This type of lease is generally applicable to highly specialized or expensive pieces of equipment where ownership makes little financial sense.
Ideal for…
Businesses that don’t want to outlay large sums up-front to purchase their assets but would prefer a little more flexibility than is offered by contract hire. Or businesses who just want to use an asset not necessarily own it.
Security Requirements
The item involved in the lease agreement will act as security.
Advantages
- Fixed repayments allow accurate monthly budgeting.
- Minimum capital expenditure.
- More flexibility than contract hire.
- Leasing can protect a business against asset depreciation.
Disadvantages
- You don’t own the asset.
- Occasionally personal guarantees are also required.
Key UK Providers
- All High Street Banks
- Specialists Providers