Operating Lease or Contract hire gives a business the ability to hire an asset for a fixed period, with or without maintenance and other related services included, for a fixed period and return the asset to the leasing company at the end of the contract hire period. As the business is in effect only repaying the value of the depreciation in value of the asset (plus interest) during the term of the asset the repayments are generally less than those for a comparable hire Purchase or finance facility. This form of funding is best suited to high value assets such as cars, commercial vehicles trailers and agricultural equipment. In certain circumstances, it can also be an effective way to acquire computers and IT equipment as well as a range of medical equipment.
An Operating Lease lets your business benefit from fixed costs based on a predicted annual use. The equipment remains the property of the Finance Company and will need to be returned at the end of the lease term.
- With an Operating Lease, rental and return conditions are fixed/known at the outset
- The costs of the lease are offset through the Profit and Loss account
- The Finance Company carries the risk of the future value of the equipment
- Potential for improved cash-flow through payments that are normally lower than Hire Purchase or Finance Lease and tax-efficient payments
- VAT is payable on the rentals so it is not necessary to pay VAT on the equipment cost up front