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Leasing is a highly flexible way of acquiring the assets your business needs. It allows you to preserve working capital by financing equipment over the course of its cash-generating life.
Leasing can involve lower deposits and lower monthly payments than loans or hire purchase. It also gives you a new line of credit, totally separate from everyday business banking and overdraft facilities.
For certain assets, including technology, you can benefit from a full life cycle management service, including sourcing, maintenance and disposal.
How does it work?
Like loans or HP, you make regular payments over an agreed term. The monthly rentals and lease period can be tailored to suit the needs of your business.
With leasing, you do not own the assets – they remain the property of the leasing company. However, you will enjoy most of the benefits of ownership – including the right to sell the equipment at the end of the lease and retain the majority of the proceeds.
Leasing – the key benefits:
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• Working capital preserved – payments spread over the life of the asset
• Allows equipment and plant to be updated as old assets need replacing
• Fixed monthly costs for greater control of cash flow
• Rentals can be offset against your taxable profits
• Flexible end of lease options |
Tax advantages
Leasing can offer significant tax efficiencies for your business – without the need for complicated paperwork.
With leasing, the finance company will claim the capital allowances. These are then passed on to you in the form of lower rental payments.
This can be a real benefit to your business, especially if:
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• You are unable to make full use of capital allowances, for example due to low profits
• You prefer to get the cashflow benefit immediately, instead of having to claim capital allowances later. |
VAT
When your business buys assets through cash purchase or HP, you pay VAT and claim it back each quarter.
With leasing, your rental agreement is based on the net value of the asset. This means you enjoy an immediate cashflow benefit, as you will not need to pay VAT upfront.
During the lease period, the finance company will charge VAT on your rental payments.
If you decide to sell the asset at the end of the lease, you will need to account to HM Revenue and Customs for VAT, based on the sale value.
At the end of the lease
At the end of your lease, you will have two main options:
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• Sell the asset
• Keep it, by extending your rental period |
Sell Normally, we will allow you to sell the asset. This is because we cover our initial costs over the life of the lease agreement. As the asset is legally ours, you will need to inform us of the details of the sale – however, you can usually retain the majority of the proceeds.
Keep You can enter into a secondary rental period for a nominal payment – usually one twelfth of the original rental. The finance company will retain legal ownership of the asset during this time.
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