Buy Equipment or Finance Lease It? Understand The Benefits of Finance Lease

Traditional finance for the purchase of equipment, assets, upgrades of kit etc, is all pretty normal and standard practice, as is HP (Hire Purchase) or traditional asset finance.

However, finance lease is becoming a more popular method of funding assets and with some good reasons.

The Difference?

Take a standard business loan or hire purchase / asset finance agreement. A standard business loan will give you the cash to go and purchase your asset, that asset is then owned by you and the loan repaid from profits. With hire purchase the same applies, however the asset is given as security and could be sold if the loan is not repaid.

In each of these cases the interest element can be put through your profit & loss account (P&L) as a business cost. The capital element of the loan repayment is deducted after corporation tax has been paid.

With a finance lease, the asset is not owned by you, rather it is owned by the finance lease provider and only becomes yours at the end of the finance period. This means that HMRC class the  cost differently and the whole amount of the repayment can be deducted as a cost on your P&L, meaning you make the repayment before corporation tax.

That mean you could be financing your asset 20% cheaper.

Any Catches?

As always, please ensure you are aware of the terms and conditions of any finance agreement. Sometimes there will be a transfer if title cost at the end of the period so please check, if you are unsure then get in contact and we will clarify for you.

A link to the HMRC website article is here if you want to read further.

What Next?

If you are thinking of  buying any business asset then please get in touch via the website, contact us on 01293 541333 or add your comments and we will respond.

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