Lease hire or HP?

[Steve Bullman]

I dont really understand the ins and outs of lease hire but have heard it can be a bit of a minefield. could someone share their knowledge on the subject for myself and anyone else interested....and also is either one better regarding tax?

[PeteB]

there are that many variable, but here goes.

 

HP - you own it at the end of the term. VAT and deposit up front.

 

Lease hire - At the end of the term, the machine is not yours without a further fee, no upfronts bar the arrangement fee, vat charged monthly. The owner has the right to charge you reasonable costs to put the machine back into a good condition. Vehicles may be subject to mileage clause, with expensive penalties if you go over. Penalties payable for early step out.

 

Flexi-Lease - As above, but a bit more flexible in that you can walk away from a five year deal at 3 years and have a new machine with figures adjusted to inc the shortfall and the new machine. A small "paperwork" fee means that you own the tool at term end. If its use is seasonal, pay 12 in 6 months, then "holiday" for the off period.

 

However - it can be a minefield, be careful to get all the facts, if in doubt ask. It's better to look inquisitive and sensible than get stitched up on a deal with expensive set out clauses, or repair costs.

[jonnie t]

With lease hire you never actually own the kit so its not an asset that hits the books to get included in annual tax calcs. The lease cost is an overhead as well as operating costs so it offsets against profit and reduces tax. You pay vat on instalments. With HP you own it, so vat up front in full. It hits the books as an asset, but gets depreciated in the accounts over its reasonable life and that depreciation is an overhead that again offsets against profit. Major thing here is cashflow and affordability at the time (leasehire cheaper cos your not actually buying). Like Pete said, its a minefield and Leasehire might be maintaining/non maintaining with penalties for extra use and repairing clauses too. I’d definitely get more than one option from more than one Financer and then run it past an accountant.

 

Now I've got a headache!

[PeteB]

The kit we had was only on HP. Another rule is - if it lasts, lease it. If it doesn't buy it and take the loss quickly!!!

[Quickthorn]

With HP you own it, so vat up front in full. It hits the books as an asset, but gets depreciated in the accounts over its reasonable life and that depreciation is an overhead that again offsets against profit. Major thing here is cashflow and affordability at the time (leasehire cheaper cos your not actually buying).

 

Like he said, HP makes it your asset..as far as tax goes, in the year you buy it, you can also claim first year allowance, which is 40% (or sometimes 50%) of the asset's value, then 25% depreciation of what's left in following years, to be offset against your profits. That's probably why lease hire is a little cheaper..the leasing company gets the capital allowances.

 

One thing to watch out for is lease hire agreements with a final balloon payment. Some of these agreements, especially for vehicles, can have hidden pitfalls. You get sucked into cheap monthly payments, only to lose out at the end when faced with a last payment far in excess of the kit's residual value.

 

Here is a link to a farming forum discussing finance of machines.

[jonnie t]

Like he said, HP makes it your asset..as far as tax goes, in the year you buy it, you can also claim first year allowance, which is 40% (or sometimes 50%) of the asset's value, then 25% depreciation of what's left in following years, to be offset against your profits. That's probably why lease hire is a little cheaper..the leasing company gets the capital allowances.

 

One thing to watch out for is lease hire agreements with a final balloon payment. Some of these agreements, especially for vehicles, can have hidden pitfalls. You get sucked into cheap monthly payments, only to lose out at the end when faced with a last payment far in excess of the kit's residual value.

 

Here is a link to a farming forum discussing finance of machines.

 

Quickthorne's spot on about caution over the balloon. It can really nail you.

[TimberCutterDartmoor]

Is this the same as Asset Finance? Just wondering if anyone can shed any light and suggest good / bad etc... Ta.

[Jonny69]

Leasing and asset finance are not the same.

 

Asset finance is generally Hire Purchase.

 

R.E good bad etc.

 

Stay away from leasing anything, it looks good and salesman sell it hard for a reason. It makes a LOT of money. HP is very simple and as long as you look over (or have someone else look over the agreement) there is almost nothing to go wrong and you will be able to factor in exactly what a machine will cost you, when it will cost you and how much the total you will payback is. Dont know arb kit wise but some car dealers still do guarenteed buy back so you can own a car for three years and they guarentee to buy it back for x amount provided it is as described and the car has cost you exactly you monthly HP and no more, simple.

 

Leasing looks great until they rape you at the end with a £1500 pound bill for wheels, tyres and scratches and you dont even own the van anyway.

 

The only companies that make leasing pay are large businesses running fleets. I imagine all those little EON fiesta vans I see about are on one big lease contract, if you are buying 50 cars, 30 tractor units or similar then leasing is great.

 

However for small business I have never ever seen it work. PM me for more info I can help if you own a business looking to finance a business asset.

 

Cheers.

 

Jonathan

[Rupe]

I got my first chipper on lease hire becasue then I wasn't vat registered so I paid the vat monthly for the duration but knowing i was still not the owner of the machine was not great. Its like the machine is just a monthly cost not an asset.

 

Then when I was vat registered I traded it in for a new one (hadn't finished the payments yet bu tgot more for trade in than I owed) which was on HP. I paid the vat up front and had no vat bill that quarter then am still making the payments now but over a shorter term at better rates, but that is partly to do with lower interests rates compared to when I got the first one.

 

I have sinced un registered for vat, but I have already claimed the vat back on the chipper so no worrries.

 

I bet that is no help whatsoever!!

[Big J]

I've just gone for a Nissan Navara on Lease Finance.

 

These are the main bullet points, if you like:

 

* Nissan Navara with added extras of canopy, load liner, all terrains, tow bar, reversing sensors for £293 a month plus VAT

 

* Final balloon payment of £5600 at the end of the 5 year lease, which is comfortably less than 100k 5 year old examples are going for at present (with the extras, it's a £25k vehicle).

 

* Three ways to sort the balloon payment out at the end. Either the lease company takes it back, and sells it (and you pick up the profit or shortfall), you sell it (and pickup the profit or shortfall) or you sell it to a third party who can then sell it back to you (same deal with profit or shortfall).

 

* No mileage restriction, no clauses for condition of the vehicle in the end as it's in your interest, financially speaking, to look after the vehicle.

 

* Fully qualifies for tax relief (for those who aren't VAT registered) and you can claim the VAT back each month if you are.

 

* Ended up working out cheaper than running the old vehicles we've always had, especially when you factor in lost earnings due to repairs/MOTs etc.

 

Truck will be delivered before the end of the month, and I must say that I am very excited!

 

Jonathan