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Finance Lease (FL)Finance Lease offers the company accurate monthly budgeting and cash flow, minimum capital expenditure and a fixed interest rate, this method of funding provides an alternative solution to contract hire.
Although your business will never actually own the vehicle, Finance Leasing makes many of the benefits associated with ownership available to your business, whilst at the same time offering significant tax advantages.
For the duration of a Finance Lease agreement the vehicle will be shown as a leased asset within your balance sheet. Rentals are treated as a revenue expense and may be offset against your taxable profits. Furthermore, rentals can be tailored to match the cash flow of your business with a 'balloon' rental being used to defer part of the vehicles initial cost.
If your business is registered for VAT, 100% of the VAT payable on the finance rentals may be recovered where the vehicle is either a van, or a car used solely for business purposes. If the vehicle is a car used for business and private mileage, then only 50% of the VAT is reclaimable.
At the end of the agreed period the vehicle is sold and the proceeds are used to clear any 'balloon' payment. If the sale proceeds do not cover this amount then the shortfall must be made up by the lessee. Should the proceeds exceed the 'balloon' then the difference will be refunded as a rebate of rentals.
- Rental pattern tailored to suit the cash flow needs of your business and a 'balloon rental' will typically be agreed between the lessee and the Finance Company
- Low initial outlay (usually 3 rentals in advance)
- No mileage penalties
- Can be done as a business or as an individual
- Vehicle shown as balance sheet asset
- Rentals are allowable against tax
- VAT registered businesses can reclaim all, or some of the VAT payable on the finance element of the rentals