Finance Lease is an alternative method of financing the acquisition of operational assets and is in effect a long term hire agreement. The lease is usually fully amortizing which means that the whole of the capital and the interest due are repaid during the term of the agreement, as with Hire Purchase. The core difference is that the VAT is payable on the rentals as they become payable and not at the outset of the agreement. This facility is useful for those businesses that do not wish to pay the whole of the VAT upfront on the purchase due to cashflow constraints or indeed may not be VAT registered so are unable to claim the VAT paid back on any purchases.
- Financing for up to 100% of purchase price
- Options to either continue renting equipment after the primary period, normally at reduced or nominal sum or, if permitted in the contract, sell it and retain a proportion of the cash proceeds when the lease term ends
- VAT payable on rentals so it’s not necessary to pay VAT on equipment cost up front
- Depending on asset type and term, it may be able to offset rental payments against profits and reduce tax liability
- Payment structure agreed at outset can be designed to match cash flow if required
- Final lump (or balloon) payment can help reduce regular payments where beneficial