Operating Lease

Introduction

Particularly effective for high value, specialised assets and vehicles. The finance company builds in a residual value to reduce the rentals, thus helping cash flow and making 'off-balance sheet' funding possible.

Key features and benefits

• The finance company bears the residual risk on the equipment's value.
• Rentals can be set according to the customers cash flow, especially beneficial if the business is seasonal.
• Rentals can normally be offset against taxable profit.
• Asset normally treated as 'off-balance sheet' (subject to the customers auditors' approval).
• Fixed or variable interest rate - they make the assessment and choose accordingly.

Typical assets: Cars, commercial vehicles, plant and machinery, buses and coaches - in fact any asset where the finance company can support an appropriate residual value. Special rules apply to company cars.

Frequently Asked Questions

Is this type of lease 'off balance sheet'?

Yes, subject to confirmation of the customers auditors, they have the option to classify your lease as 'off balance sheet'.

Can customers claim any tax allowances?

As owners, the finance company claims the appropriate writing down allowances and these are reflected in the rentals. Customers should be able to offset the rentals against taxable profits, normally over the same period as their agreed depreciation policy.

Can customers claim the VAT charged on the rentals?

Providing they are registered for VAT, they can normally claim the VAT payable on the rentals, special rules apply to company cars.

What if the asset is lost, stolen, damaged or destroyed or becomes subject to a total loss claim during the period of the lease?

The customer is responsible for the asset and for any outstanding balance on the agreement. Comprehensive insurance, covering at least the full replacement cost of the asset is therefore vital.

Who is responsible for servicing and repair?

Unless the customer has servicing and maintenance built into the agreement, they are responsible for maintaining the asset in good condition. If they fit any replacement or additional parts to the asset, they become the property of the finance company.

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