What Is 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 lease period or opt to pay lower monthly rentals with a final payment based on the anticipated resale value of the vehicle.

How Does Finance Lease Work?

At the commencement of the contract, usage parameters for the vehicle 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 do 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.

How Is Finance Lease Accounted For?

Although the ownership of the vehicle remains with the leasing company for the duration of the contract, the car does appear 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 £12000 are disallowed.

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