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Finance Lease
Finance Lease is a
tax efficient option where you choose to pay either the entire cost of
the vehicle, including interest charges, over an agreed period or pay
lower monthly rentals with a final payment (often known as a balloon)
based on the anticipated resale value of the vehicle.
How Does It Work?
At
the beginning of the contract, parameters for the vehicles usage are
agreed, and assuming this does not vary, monthly payments and interest
rates are fixed for the duration of the contract. Therefore you benefit
though fixed costs but you take on the administration and operating
risks. At the conclusion of the contract you can continue to operate the
vehicle under a "peppercorn agreement" although you will at no time take
ownership of the asset. Service and maintenance option is available (See
Fleet Management - Maintenance).
How is it accounted for?
Although the
ownership of the vehicle remains with the leasing company for the
duration of the contract, the car appears on your balance sheet with the
capital element of the outstanding rentals acting as the subsequent
liability.
The rentals paid
can be offset against taxable profits, although a proportion of the
payments relating to the excess value of the vehicle over and above
£12,000 are disallowed. |
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