Finance Lease

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About Finance Leasing

An alternative to Contract Hire where the hirer has the option of paying back the capital cost of the vehicle over a longer period. It is particularly suitable for users who may incur higher than average annual mileage or where the wear and tear on the vehicle may be higher than normally expected as acceptable under Contract Hire terms. The hirer takes the risk on any loss on the sale of the vehicle at the end of the contract. If there are proceeds of the sale, the hirer will receive a most of them from the finance company. The hirer never assumes ownership. A one off larger balloon payment is usually made to reduce the monthly rentals. The hirer may retain the vehicle for a peppercorn (nominal/low) monthly rental. Flexible payment periods can be arranged by agreement. The cost of maintenance and Graduated Vehicle Excise Duty (Road Tax) is born by the lessee.

The accounting and taxation treatment of this type of contract can differ from business to business and you are strongly advised to check how your particular circumstances are affected with your accountant. The same applies to the treatment of VAT. Most of the variations depend on whether your business is a limited company on the one hand, or a partnership or sole trader on the other and the determination of whether or not the vehicle appears in the balance sheet and is depreciated, or if the lease payments are included in the Profit and Loss accounts as an expense, and consequently how VAT claims are to be treated.