Fixed Asset Purchases – HP V Leasing. - Article Kelso : Rennie Welch

Fixed Asset Purchases – HP V Leasing.

Many businesses require assets in order to operate but they may not have the capital available to buy the assets outright.  However there are other options available to them in the form of purchasing the asset though a hire purchase agreement, or leasing the asset via an operating lease. 

Hire purchase is attractive to most as it allows the purchase of expensive equipment while at the same time helps manage your cash flow.  The finance company will purchase the equipment and repayments will be spread over a specified period.  Ownership of the asset transfers to you on conclusion of the finance, therefore building up your equity.  The tax advantages of hire purchase include the ability to claim capital allowances on the full asset value once the asset is in use, and interest cost is tax deductable.

Operating leases are often used if a business has a high turnover of assets i.e. the assets become outdated quickly.  Equipment can be renewed on a regular basis without incurring the large payments and charges of settling a hire purchase agreement early.  There are cash flow savings to be made in the upkeep and insurance of the asset as the responsibility for these costs normally lie with the lessor. From a tax perspective, the only benefit of an operating lease is that the total lease payments are usually wholly tax deductable.  As the ownership of the asset remains with the lessor no capital allowances can be claimed.

When faced with the decision to opt for a hire purchase or operating lease agreement, often the deciding factor is the period you expect to require the asset, in relation to the useful life.  Cash flow and your individual tax position may also play a part in the decision making process.  

Should you look wish to discuss any of the above situations before your next asset acquisition then please do not hesitate to contact us.

Craig Telford
craig.telford@renniewelch.co.uk

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