Finance Lease

Paying cash for an asset can be a significant drain on your working capital. Leasing the asset, however, gives you access to the asset without paying for it all at once.

All forms of leasing are basically rental agreements giving you (the lessee) the right to use an asset owned by the lessor (finance company) for a specific period of time in return for regular payments (rental payments).

You can lease almost anything, from equipment valued at a few thousand pounds to assets worth millions.

Leasing contracts are flexible and can be tailored to your needs.

When leasing, consider its effects on accounting, reporting, tax, and your cash flow. This section will give you a general overview. It does not replace professional advice

You may wish to consult your accounting and tax advisors before finalising a lease transaction to reap the maximum benefit and avoid complications.

How leasing works

There are many types of leasing but, fundamentally, all fit one of two categories:

Direct Lease

You identify the asset (and negotiate the price) and arrange for the leasing company to buy it from the manufacturer (if new) or the previous owner (if used) to rent it to you.

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

Benefits

  • Low Initial Outlay - Preserves Cash Flow
  • Spreads the impact of the Full VAT
  • Tax Efficient
  • Flexible Repayments giving an efficient cash flow

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