Lease

A Finance Lease is a credit agreement where the funder purchase the asset and you pay a monthly fee to use the asset, but won’t own it at the end.

Usually you will pay a larger first payment to bring down the amount borrowed, which also excludes VAT. Then you pay a monthly amount that includes VAT for the primary term, agreed on the contract. Worth knowing that you can expense this VAT and potentially the interest from these agreements.

Once the primary term is complete you don’t have to hand the asset back straight away, you can keep on using it for a lower cost. Often called peppercorn, secondary or evergreen rentals, you will pay your monthly rental for a longer period of time I.e. yearly or every 6 months.

In Life Changes

End of Agreement

Advantages:

1. Use of Higher-Spec Assets: Finance leases allow businesses to use newer, higher-spec assets that they might not be able to buy outright.
2. Fixed Monthly Payments: Instead of a large upfront investment, the cost of the asset is spread over fixed monthly installments.
3. Tax Benefits: VAT is payable on the rentals (not the purchase price), and rentals can be offset against taxable profit (special rules apply to cars).
4. Flexible Repayment Structures: Tailored to match your company’s cash flow.

Disadvantages:

1. Secured Against the Asset: Non-payment could lead to asset repossession.
2. Credit Rating Impact: Non-payment affects both the business and guarantor’s credit rating.
3. No Ownership: The finance company remains the legal owner of the asset.
4. No Bankruptcy Protection: The asset isn’t protected if you or your company go bankrupt