This is a ‘rental’ agreement rather than a ‘purchase’ agreement. For this reason it is treated in a completely different way by the Revenue. It is a popular way of funding a broad spectrum of business assets. It offers all the practical benefits of ownership without many of the potential burdens.
Rentals are calculated on the VAT exclusive price of the goods. VAT is paid on the rental payments, at the end of the primary period, if the goods are sold you will be refunded the majority of the sale price.
This is a flexible, tax-efficient way for a business to utilise business assets without using its cash reserves, similar to Hire Purchase.
However, with a finance lease the Lessor owns the assets. You can normally sell them on the Lessor’s behalf at the end of the term and keep most of the proceeds or keep the asset for a nominal annual sum. Rentals are paid to the Lessor through the term of the agreement and any VAT due on the asset is payable on the rentals. VAT is claimed back at the applicable rate on the rentals rather than the cash price. A Finance Lease can be suitable for businesses of all sizes and all types of assets.
- Flexible repayments – we can tailor your rental payments to match your cash flow, helping you budget more easily
- Reduce your monthly payments by setting a final lump sum – known as a balloon payment
- Taxation – you pay VAT on the rental payments, not the purchase price. You can also normally offset your payments against your taxable profit. (For further clarification speak to your Accountant or visit the HMRC website.) VAT on repayments is 100% reclaimable on equipment and commercial vehicles. For cars special rules apply