Q - What is leasing?
A – 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.
Q - What types of companies lease?
A – 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.
Q - What is the minimum value that can be leased and how long is a contract for?
A – 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.
Q - What are the tax benefits of leasing?
A – 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.
Q - How are the rentals treated for VAT?
A – 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.
Q - Will I have to pay by Direct Debit?
A – 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.
Q - What happens at the end of the lease?
A – 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 However, should the equipment be ‘out of date’ at this point and you don’t wish to keep it, you can simply look to replace it and commence another lease.
Q - Can I upgrade the equipment if I need to in the future?
A – 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.
Q - Will signing a lease affect my other credit lines?
A – Absolutely not. All of your other credit lines will remain intact and free for use when you may need them more.
Q - Are there any administration fees with leasing?
A – 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.