FAQs
People often ask us questions, so we created this FAQs page to help. Here, you’ll find clear, straightforward answers about our finance solutions to support your decision-making with confidence.
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Frequently asked questions
We find that the same questions come up time and again, which is why we feel it’s useful to have a page such as this on our web site. If, however you don’t find the answer you are looking for please feel free to contact us and we will be happy to answer any and all of your questions regarding leasing for new and used equipment.
The simple answer is ownership however there are also two other main areas of difference.
Firstly, the treatment of VAT on commercial vehicles is generally different, with full vat on the cost of the goods payable in advance on Hire Purchase and VAT payable on the monthly payments, spreading the VAT across each rental.
Secondly some leases may become ‘off balance sheet’, which means that neither the asset nor the liability appear on the balance sheet. Just the net payment, treated as a direct overhead cost. HP is always ‘on balance sheet’ meaning the asset appears in your Fixed Assets and the balance outstanding in your liabilities. The HP interest is an allowable expense of the business.
Some finance leases, because you have a benefit in the residual sale proceeds, are treated very similarly to Hire Purchase and capitalised as leased assets. Realistically you should speak to your accountant for the best advice specific to your circumstances.
With Hire Purchase you get to own the goods by paying an option to purchase fee either with the last payment or included in an early settlement figure.
Finance Leases are a non-ownership product and have 3 options when you have come to the end of the agreement. You can return the equipment back to us or ask us to extend the term of the lease for an agreed additional period or discuss how we can upgrade the equipment on new lease terms with the original supplier. This would be subject to credit approval at the relevant time.
Contract Hire and operating leases give the user no ownership either, at the end of the lease you would be expected to return the goods and possibly pay for excess use or mileage and any repair costs if it is damaged. If you want to settle these agreements you may be required to repay all the outstanding rentals you agreed to pay at the beginning or pay an early exit penalty.
Hire Agreements are normally a rental where the supplier or third party takes ownership of the goods at the end of the lease. These types of agreements are normally seen when financing IT equipment, coffee machines and photocopiers.
In business, cash is king. By paying cash for a fixed asset it may put a strain on cash-flow. By financing your asset, you have more cash left in your business and more control over your finances. After all, the benefit of owning your asset is not instant, the benefit comes in slowly, match this to your repayment period and an affordable monthly cost.
You may be able to afford to buy the equipment outright, but before you make this decision you must consider the following:
- All leasing payments are rental payments and as such are an allowable business expense, therefore if a business is making money the profit can be reduced by the amount of the rentals you pay each year, which in turn reduces your tax bill.
- Payments are normally the same throughout the lease contract. This means that increases in interest rates do not affect you and your cash budget can be utilised more effectively.
- Leasing enables you to protect your cash to use for other needs such as new stock, staff training, advertising, new business opportunities and unexpected expenses.
No.
Your monthly payment is fixed at the start of the finance agreement and so is unaffected by interest rate rises. You can budget your cash flow more accurately. As inflation rises, because your payments are fixed, the cost of the equipment reduces in real terms.
Any business wishing to acquire capital equipment should look for the most tax efficient way to purchase. Lease payments may attract tax relief – your accountant will be able to confirm this.
Direct Debit is the preferred method of repayment with the money being released on the same date each month or quarter. Quarterly invoice payments are also available.
Using your bank for all your business funding is not good practice.
If you use your overdraft facilities, you may leave yourself in a vulnerable position to react to any sudden needs for short-term borrowing.
Another common problem is encountered when your bank decides to change the interest rate mid-way through a loan or reduce your overdraft facilities, which can dramatically affect the cash flow of your business. Sometimes banks will limit the amount they will lend to you without further security such as taking a charge on your home. It is not financially prudent to have all your eggs in one basket.
A lease agreement is a contract between you, ‘the customer’, and a leasing company. This enables you to have and use a piece of equipment over a period of time on payment of rentals to the leasing company.
With a typical lease agreement, you make a series of regular payments (usually on a monthly basis), thus helping cash flow, as opposed to a large capital outlay for the equipment.
You won’t have a depreciating asset on your books, and can benefit from the tax advantages of paying a lease rental.
This small cash outlay means you can have the latest technology and start to enjoy the extra profits this generates before your next lease payment is due.
The full invoice amount is settled with the supplier upon the equipment being installed or delivered to your satisfaction.
