Asset financing of equipment is ever increasing and in demand. Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said, “The asset finance market reported its thirty-first consecutive month of new business growth in April." So far in 2016 the percentage of UK investment in machinery, equipment and purchased software funded by asset finance increased to 31.8% in the twelve months to March 2016.
Typically business critical assets are rapidly depreciating; therefore many businesses will seek to spread the cost of acquisition over the expected life of the asset via leasing.
Preserving capital for operational costs, purchasing stock, identifying new products and business opportunities that may arise are key drivers of growth in the sector and make the benefits of asset finance clear.
Asset finance (also known as equipment finance) will assist you in obtaining a wide range of equipment requirements and helps you to spread the cost of investment. Wholly or largely secured on the assets being financed, the need for large deposits is reduced, giving you the flexibility to replace or upgrade equipment at any time.
Frequently asked questions
Making the right decision on which finance product you choose to use for asset purchase is incredibly important. We always recommend that businesses seek to discuss their expenditure plans with an accountant or other relevant adviser. We have produced a simple guide providing some clarity around each product’s salient features:
| Question | Finance Lease | Hire Purchase | Commercial Loan |
| Will I be able to own the asset? | Potentially | Yes | Yes |
| Are rentals tax deductible? | Interest Only | Interest Only | Interest Only |
| Can I claim Capital or Annual Investments Allowance? | No | Yes | Yes |
| Does this route preserve capital? | Yes | Yes | Yes |
| Can I have a fixed term agreement? | Yes | Yes | Yes |
| Can the term be extended? | No | No | No |
| Will the agreement be made on demand by LDF? |
Potentially | Potentially | Potentially |
| Do I need to pay the VAT Upfront? | No | Yes | N/A |
| Is the asset off balance sheet? | No | No | No |
| Can VAT on payments be reclaimed? | Yes | No | N/A |
| Do I have to insure the assets under the agreement? | Yes | Yes | No |
| Can VAT on the cost of the asset be reclaimed? | No | Yes | Yes |
| Will I need to pay a facility or arrangement fee? |
Yes | Yes | Yes |
Remember:
- Where VAT is classified as reclaimable assumes your business is VAT registered
- The tax and VAT treatment may differ dependent upon the asset finance products
- Facilities can be made on demand in accordance with the terms and conditions of the agreement
- Please seek specialist advice on VAT and tax relating to your business
- Please note that security may be required and product fees may apply
