fixed asset finance

There are many options for funding your vehicles, machinery, equipment and IT. Which one is the best choice for your business, depends , amongst other factors, on
We can help you examine the factors that enable you to make a decision and then arrange a suitable, competitive facility.

Hire Purchase

A facility similar to a secured loan because the lender’s prime security is the asset(s). The lender retains legal ownership until the end of the agreement and normally passes title to you with the final payment. For tax and commercial purposes, the asset is yours from day one. You usually claim the VAT back on the purchase price (assuming you are VAT registered). You also claim the available tax allowances on the purchase price and Interest is a tax deductible expense. . The asset is included on your balance sheet and the Hire Purchase amount included in Current and Long term liabilities

Deposits are negotiable, Interest rates might be fixed or floating, repayment terms are usually linked to the economic life of the asset or a shorter period, commonly in the range of 24 – 84 months

Finance Lease

In the right circumstances, a Finance Lease is an attractive alternative to Hire Purchase, especially for company cars where the VAT treatment is different. The lease itself is a long term rental agreement offering you (Lessee) the primary risks and rewards of the asset. The lenders (Lessor) prime security is the asset(s) because the lender retains legal ownership until the asset is sold to a third party. The rentals are an expense for your profit & loss account and treated as a tax deduction in each year. The rentals attract VAT at the prevailing rate. Assuming you are VAT registered, you can usually reclaim the VAT on each rental (except for cars – see below). The different tax treatment may suit your tax position more and lease terms usually offers a better initial cashflow. Normally, at the end of the lease, you can sell the asset on behalf of the Lessor and receive 95% – 97.5% of the eventual sale proceeds of the asset as a Rebate of Rentals. The asset is included on your balance sheet and the Lease rentals amount included in Current and Long term liabilities .

Finance Lease – Cars

Under current legislation, only Car Hire/Lease Companies can reclaim the VAT on cars. There is an exception restricted to “Pool” cars provided you can meet the criteria. However, in the case of LEASED business cars, companies may usually claim 50% of the VAT on each rental. The rentals are treated as a tax deduction in each year. At the end of the lease you are able to sell the vehicle on behalf of the Lessor and usually receive a Rebate of Rentals equal to 95% – 97.5% of the sale proceeds of the car. Overall, this can mean that leasing a company car is cheaper than buying a company car outright. The asset is included on your balance sheet and the Lease rentals amount included in Current and Long term liabilities .

Balloon Payments

Balloon payments enable you defer paying part of the capital until the end of the agreement. Example: If your balloon payment is 30% of net cost, your payments are based on 70% of the net cost. This is normally available for Commercial Vehicles and Cars, utilising either Lease or Hire Purchase. It should be noted these balloon payments are NOT Guaranteed Residual Values. The advantage is cashflow, reduced payments during the term of the agreement. The disadvantage is a higher interest cost and reduced equity at the end of the term

Contract Hire

A long term rental agreement, typically on vehicles, for a pre-agreed period of time and a specified mileage. Maintenance may or may not be included in the rentals. A useful facility if you wish to remove all Residual Value uncertainty, at the end of the agreement you hand the vehicle back and start again. Return conditions will apply in respect of the vehicle condition and mileage. Contract Hire also has a VAT reclaim advantage over outright purchase on cars. The asset does not appear in your Balance sheet and the rental liability is usually a Note in your Accounts

Operating Lease

Similar to Contract Hire, this facility may be used for machinery and equipment with an identifiable Residual Value and usually with an identified useful economic life. The Lease company will take residual value risk themselves or might make an arrangement with the manufacturer or distributor. Like a Contract Hire agreement, at the end of the lease period, the asset is handed back. The asset does not appear in your Balance sheet and the rental liability is usually a Note in your Accounts

Loans and Chattel Mortgages

Loans offer immediate ownership but grant the lender a charge over the assets (known as a Chattels Mortgage). This is mostly used for special or larger projects where the lender either:
The business will be the owner, claim the VAT deduction, claim the tax deductions and claim the interest paid as an expense. Interest rates can be fixed or floating

Which facility is right for you?

Talk to us and through discussion and a series of questions on your objectives and tax position, we can help you reach an informed decision and arrange a suitable facility