Hire Purchase
What is a hire purchase agreement
A Hire Purchase agreement is a finance agreement over an agreed period where you pay a fixed instalment and during the term of the agreement you have full use of the asset. At the end of the agreement subject to all the agreed repayments being made ownership of the asset is passed to you.
Hire purchase is flexible and to reduce your instalments a part-exchange, deposit, balloon rental or additional scheduled capital repayment can be added to the payment profile.
Why Hire Purchase
Key benefit of Hire Purchase is that you can acquire assets on a flexible repayment basis and own the asset at the end of the agreement once all the agreed repayments have been made.
Hire Purchase gives easy budgeting and financial planning by giving you a fixed number of years for repayment at a fixed competitive rate of interest. If your plans or circumstances change you can settle the agreement early.
You will be entitled to claim capital allowances on assets on a Hire Purchase and the interest charge may qualify as a business expense. To get absolute clarity on your exact tax position you should refer all tax related matters to your company accountant as while we can outline the key taxation principals of a Hire Purchase agreement Northern Finance are not authorised to provide tax advice. Not all assets are suitable for a Hire Purchase agreement and contact us for advice.
Finance Lease
What is a Finance Lease
A lease agreement is a contract to rent an item of plant of equipment for an agreed term or fixed repayments. At the end of the term there are options. You can enter a secondary rental period where you retain use of the asset for a small annual rental, or you can sell the equipment on behalf of the finance company and retain a portion of the proceeds of any sale or you can trade in the asset and retain a part of the trade in value.
Why a Finance Lease
The key advantage of a finance lease from a tax perspective is that the tax deduction for the capital cost is usually available earlier in comparison to a hire purchase agreement depending on your annual capital expenditure and tax position. You do not claim capital allowances though the rental payment is a fully deductible business expense against tax. To get absolute clarity on your exact tax position you should refer all tax related matters to your company accountant as while we can outline the key taxation principals of a Finance Lease agreement Northern Finance are not authorised to provide tax advice
As ownership of the asset has not been acquired at the outset the VAT on the asset is not paid up front instead the VAT the agreement rentals is reclaimable. This can assist cashflow comparatively as against Hire Purchase agreement.
Finance Leasing use is very dependent on your exact tax position. Feel free to contact us for further information.
Operating Lease
What is an operating leaSE
An Operating Lease is a finance agreement over an agreed period where you pay a fixed rental and during the term of the agreement you have full use of the asset. At the end of the agreement the asset is ordinarily returned to the finance company.
One of the main advantages is that you will have lower rentals as an operating lease assumes a resale value at the end of the contract. This resale value is included in the calculation of rentals that reduces the capital payable on the agreement making your repayments lower. Depending on the type and cost of the asset funded the reduction in rentals can be significant.
Why an Operating LeasE
Lower rentals may allow you to invest in equipment where your business cannot justify the expense of an outright purchase or Hire Purchase product or indeed may allow you to consider purchasing an asset at a higher price that will perform to the standard you really need rather than just satisfactorily.
There are many other potential advantages. These include no future risk on asset resale values, cashflow benefits that may assist with restrictive bank covenants, matching asset funding to specific contracts, you can add your R&M payments to give one fixed repayment and operating lease can negate the risk of technological advances making your asset redundant therefore losing value over time.
Perhaps as important a potential benefit as any is as that an operating lease is classed as a business expenses so it can reduce pre-tax profits and therefore reduce the amount of corporation tax you pay. To get absolute clarity on your exact tax position you should refer all tax related matters to your company accountant as while we can outline the key taxation principals of an operating lease Northern Finance are not authorised to provide tax advice.
Operating leasing is a broad and more sophisticated product than other asset finance products so it’s worth making contact to let us provide all the information to let you decide if it’s a suitable option for you.
