Asset finance · Finance lease
Finance lease for business equipment and vehicles
Use the asset for its full working life, spread the VAT across the rentals, and decide what happens at the end.
In short
Full use of the asset, without taking title
With a finance lease the funder buys the asset and leases it to you for an agreed primary period. You get full use of it and you carry the risks and rewards that come with it — you simply never take legal title.
The practical difference from hire purchase is the VAT. Instead of paying it all up front, VAT is charged on each rental, so the money you would have tied up on day one stays in the business. That on its own is often the reason a finance lease works when hire purchase does not.
Finance lease — key terms
REF FL- Typical term
- 24 to 60 months primary period
- Initial outlay
- Usually one to three monthly rentals in advance
- VAT treatment
- Charged on each rental, spread across the term
- End of agreement
- Secondary rental, sell as the funder’s agent and keep most of the proceeds, or hand back
- Balance sheet
- On it, with rentals split between capital and interest
You take the risks and rewards of the asset but never legal title. Accounting treatment depends on your reporting standard — confirm it with your accountant.
Best suited to
When finance lease is the right call
- Assets you need for years but have no reason to own
- Businesses that would rather not fund the VAT up front
- Kit with a dependable second-hand market
- Owners who want rentals set against taxable profit
The detail
What happens when the primary period ends
You have three routes. Keep the asset on a secondary rental, usually a nominal annual amount. Sell it to an unconnected third party as the funder’s agent, in which case the bulk of the sale proceeds come back to you — commonly 95% or more. Or hand it back and walk away.
Rentals are generally allowable against taxable profit, though the treatment depends on the asset and your accounting basis. We will set the structure out clearly in writing so your accountant can confirm how it lands before you commit.
- VAT spread across the rentals, not paid on day one
- Lower initial outlay — typically one to three rentals up front
- Keep most of the sale proceeds at the end, commonly 95%+
- Terms of 24 to 60 months in the primary period
- Rentals generally allowable against taxable profit
Common questions
Questions we get asked
Ownership and VAT. On hire purchase you pay the VAT up front and own the asset at the end. On a finance lease the VAT is spread across the rentals and you never take title, though you can usually sell the asset at the end and keep most of the proceeds. If you will still be using the asset in ten years, hire purchase tends to win. If cashflow at the start matters more, the lease usually does.
You can sell it on the funder’s behalf to a genuine third party — not to yourself or a connected company. The funder retains a small share of the sale proceeds, typically up to 5%, and the rest comes back to you as a rebate of rentals.
In almost all cases, yes. The asset and the lease liability both appear, and the rentals split between capital repayment and interest. Your accountant will want the term and the rental profile to do it properly — we will give you both in writing.
Where to next
Related to this
Next step
Talk finance lease through with someone who does it daily
Send the make, model and price and we will come back with indicative terms — usually the same working day.