Finance leasing is a great way to fund commercial vehicles when contract hire is not an option and it offers many tax benefits. It allows business owners to spread the costs of operating company vehicles over an agreed length of time. Although you don’t actually own the vehicle, finance leasing allows for the use of it under the agreed terms.
The terms of most finance leasing agreements are set in place at the outset of the contract and which is when usage is agreed and rental payments are calculated based on this. The usage would have to remain the same for the fixed monthly payments and interest to remain in place. However, there are other terms and conditions often associated with van leasing which you need to be aware of and which are listed below.
Finance leasing offers flexible rental plans to suit your financial needs
Under the terms and conditions of a finance lease agreement, you would have use of an asset without actually ever owning it. This naturally reduces any upfront costs which is what makes the deal so attractive to many business owners. When signing a finance lease contract, you would have to agree to the usage of the vehicle so a fixed monthly payment can be calculated and set in place. Interest too could remain fixed if you choose this option but this is only applicable as long as the vehicle’s usage does not change during the period of the contract.
Under most finance lease agreements, you would be able to tailor the amount you pay in rental payments so they suit your budget and cash flow. You would be able to choose whether you would like a fixed interest rate or you may prefer to opt for a variable rate, depending on your circumstances, the choice is usually yours.
A Tax Efficient Way to Get Funding For Your Van
When it comes to tax efficiency, finance leasing is a great way to make your money work for you in a tax effective manner. As long as you are registered for VAT you would be able to reclaim a percentage of the VAT paid on your monthly rental on all your commercial vans that have finance leasing on them. You should also be able to offset the rental payments you make to the leasing company against any taxable profits you may make during the financial year.
Once the terms & conditions are agreed, all that’s left is to take possession of your vehicle
What Happens At the End of the Agreement
At the end of the finance lease agreement, you would be able to act as the leasing company’s agent and sell any vehicles on their behalf. You would be entitled to the majority of the money with the leasing company only taking a small percentage. However, you may choose to keep the vehicles in which case you would have to set up a re-finance deal with the leasing company which would mean paying a nominal monthly rental because under a finance lease agreement you would never actually own any of the vans even when the agreement comes to an end. There are also time limits on the age of vehicles that would be eligible for re-financing with the norm being 72 months.
Under the terms and conditions of the finance lease, you can only sell the vehicles to an independent third party and not to family or friends, business partners or any business you have direct ties with. A copy of the VAT sales invoice would need to be given to the leasing company as proof of the sale and to calculate how much of the sale price they would take and how much you would receive with the majority of the money being kept by you.
Finance leasing is a very popular choice for business owners whether their companies are small, medium or large. It is a very cost effective way of funding any vans that are needed for the business when contract hire is not an option. The tax benefits make it an interesting option especially for VAT registered people who can claim back a percentage of the VAT they pay out on their monthly rentals. There are finance lease packages which are specifically designed for people and businesses that are not VAT registered which is useful for anyone just setting up a start-up company. The terms and conditions usually associated with van finance leasing are typically pretty straight forward.
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