Dawsongroup | finance

Explained: operating lease

We know that the world of asset financing and leasing can seem a bit alien to the uninitiated – but we’re here to help! Here is the third and final installment in our mini-series of blogs – which together will provide a simple guide explaining the main finance and leasing options open to you. So read on for your rapid introduction to the … operating lease!

What is an operating lease?

This is a long-term lease that gives a business use of a desired asset – but not ownership. You pay a monthly rental for the right to use it for an agreed period, but don’t have the right to buy it at any point.

What are the features and benefits?

With deposits starting from £0, this is another way for a business or individual to have use of an asset without a big up-front cost. Terms available range from one to seven years, so this can be a medium-term solution, or alternatively, allow for a short-term trial of an asset before you take the plunge and buy.

As with other asset financing arrangements, the amounts payable each month are fixed, making them easier to plan for and manage, but it’s important to remember that at the end of the contract you hand the asset back to the finance company.

Tax/accounting considerations

VAT is paid on the monthly payments, minimising the cash flow impact. As this is a rental asset you can reclaim that VAT, and rentals can be offset against taxable profits.

While previously the value of the rented asset, and the future liabilities to pay for it, would not have been shown on the renting company’s balance sheet, as of this financial year the value of rented assets and the obligation to pay rent in the future will have to be shown as an asset on a company’s balance sheet.

Is it right for me?

Opting for an operating lease has the advantage of flexibility and offers protection from risks, including for example technical obsolescence; the finance company takes the risk of ownership and asset depreciation. There is no worry or risk at the end of the agreement or further extension either.

Compared to other options you may also benefit from lower monthly payments, as any residual value of the asset will remain with the finance company.

As with other ways of financing an asset, the biggest plus is not having to borrow or find large sums up front.

If you’re still unsure about whether an operating lease is the right fit then get in touch. At Dawsongroup Finance we take time to get to know and understand your business. We’ll talk you through your options, answer every question, and provide the tailored advice and support you need to navigate the world of asset financing like a pro!

Reach us at info@dgfinance.co.uk or by calling 01425 474070.

Don’t think an operating lease is right for you? Why not learn about the benefits of a Finance Lease or hire purchase instead?