Less popular due to changes in tax rules but Finance Leases still enjoy the ability to offset the cost of the instalments against taxable profits. The machine can continue to be used after the primary period, in exchange for a nominal annual continuing period instalment.
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finance lease

Less popular due to changes in tax rules but Finance Leases still enjoy the ability to offset the cost of the instalments against taxable profits. The machine can continue to be used after the primary period, in exchange for a nominal annual continuing period instalment.

Due to changes in tax rules there is now little cost differentiation between a Finance Lease and a Hire Purchase agreement. However, Finance Leases still enjoy the ability to offset the cost of the instalments against taxable profits. This ability may dramatically increase the value that a business writes off against tax, especially if the asset is replaced at the end of the lease. In essence a three year lease will result in writing off 100% of the instalments against taxable profits. An HP agreement would take twelve years to write off more than 90% of the asset value when using the writing down allowances on a reducing balance. Leases also enjoy a low initial capital outlay and the VAT, paid on each instalment, is therefore spread over the period of the lease. The machine can continue to be used after the primary period, in exchange for a nominal annual continuing period instalment. Although ownership never passes to the customer, when the machine is no longer required, a high percentage of the ultimate net sale proceeds is refunded as a rebate of instalments.

Benefits:

  • Low capital outlay - usually one monthly instalment per year of the lease
  • Spreads the impact of VAT which is collected on each instalment as it falls due
  • Tax efficient
  • Accurate budgeting
  • On sale of the asset a high percentage of the sale proceeds is refunded
  • Can be linked to dealer service, repair and maintenance agreements