FAQ
What is leasing?
Leasing is a contract between the funder (lessor) and the end
user (lessee) for the acquisition and use of equipment. The lessor
purchases equipment from a supplier chosen by the lessee and the
lessee then pays rentals to the lessor in return for the use of the
equipment over an agreed period, typically its working life.
What types of companies lease?
All types and sizes of businesses use leasing to acquire
equipment, from New Start companies to PLC's, government bodies and
so on. There are a variety of benefits to leasing and therefore a
number of reasons as to why companies lease, be it for the tax
efficiency or the protection of their cash flow, for example.
What is the minimum value that can be leased
and how long is a contract for?
The minimum deal size is £1,000 + vat and lease terms are
available up to 7 years, depending on the asset. IT, for example,
is typically leased over a 3 year period, as the lease term
reflects the useful life of the equipment.
What are the tax benefits of leasing?
Leasing is wholly allowable against taxable profits and is often
cheaper than cash purchase. It is estimated that over 90% of the
FTSE 100 companies use leasing to acquire the use of equipment.
Rentals are classed as a business expense and are thus paid out of
pre-tax profits. It is worth speaking to your accountant or
financial advisor for an impartial view on how you could
benefit.
How are the rentals treated for VAT?
The rentals are fixed and are based on the value of the asset
excluding VAT. VAT is thus payable on each rental as it falls due.
Hire/Lease purchase, on the other hand, requires the VAT to be paid
up-front with the first rental as from an accounting perspective,
the asset is treated as being owned by the lessee from day one.
Will I have to pay by Direct Debit?
Direct debit is the preferred payment vehicle, however it may be
possible to request an invoice only arrangement. The rental would
increase on an invoice only arrangement to cover for the additional
administration required.
What happens at the end of the lease?
Should you wish to keep use of the equipment at the end of the
lease period you can do so at a greatly reduced cost. However,
should the equipment be 'out of date' at this point and you don't
wish to keep it, you can simply look to replace it and commence
another lease.
Can I upgrade the equipment if I need to in the
future?
The flexibility of the lease contract means that you can add to
or change equipment on lease as and when you need to. The new
equipment may be added to an existing arrangement or you have the
option to run another lease alongside the original that finishes at
the same time.
Will signing a lease affect my other credit
lines?
Absolutely not. All of your other credit lines will remain
intact and free for use when you may need them more.
Are there any administration fees with
leasing?
As with all finance agreements, there will be an administration
fee payable along with your first rental. This covers the leasing
companies' costs of setting up the facility, processing paperwork
etc. Without the fee, they would simply need to charge higher
rentals to cover their costs.
Are warranties or guarantees affected at
all?
Although you are simply paying rentals in return for the use of
the equipment, warranties and/or guarantees are unaffected and
remain exactly as they would have if you had paid cash.