There is certainly an argument for using asset finance to fund equipment. The main reason I would say, is that cash is always better in the bank than tied up in assets. “Cash is King” as they say. I have seen many cash rich companies pay cash for assets and then due to a change in circumstances wish to refinance the kit because they have run out of cash. The problem is that to refinance equipment after it has been purchased is always far more expensive!
Equipment can be purchased either by Hire Purchase or finance lease.
There is an argument to say that leasing is more tax efficient as the whole of the monthly rentals can be offset against taxable profit, Therefore the full tax allowances are obtained over the same period of the lease. It can be argued that the return on the cash left in the business is greater than the cost of the finance lease less the tax benefit. At the end of the finance lease the business continues to pay a secondary rental or can obtain title via a third party. Anywhere between one or 3 additional monthly payments will need to be paid
Hire purchase has slightly different tax treatment whereby capital allowances are claimed on a reducing balance . An option to purchase fee is paid with the final payment typically £50 to obtain clear title
As a rule of thumb most accountants would recommended equipment and hi tech assets that have a limited life span and are regularly replaced should be financed on finance lease and long life assets be funded on HP. Each customer will be different and should really speak to their own accountant to determine the best way forward.
Tags: Asset Finance, finance lease