Leasing and hire purchase are finance facilities for business to use an asset over a fixed time
period, for regular payments. The business customer chooses the
equipment and the finance company buys it on behalf of the business.
Leasing
The fundamental characteristic of a lease is that ownership
never passes to the business.
The leasing company claims the capital
allowances and passes the benefit on to the business, by way of
reduced rental charges.
The business can generally deduct the full
cost of lease rentals from taxable profits, as a trading expense.
As with hire purchase, the business will normally be responsible for
maintenance of the equipment.
Hire Purchase
After all the payments
have been made, the business becomes the owner of the equipment,
either automatically or on the payment of an option to purchase fee.
For tax purposes, from the beginning of the agreement the business
is treated as the owner of the equipment and so can claim capital
allowances. The business will normally be responsible for
maintenance of the equipment.
Related Documents:
Leasing - What Types Are There?
Equipment Types - What Are Suitable for Hire Purchase and Leasing?
Leasing & Hire Purchase - What Are the Principle Advantages & Disadvantages?
