Lease Hire Vs. Lease Purchase of Garage Equipment

leasing-approvedstampGarage Equipment Leasing is a method of financing the acquisition of garage equipment where the user selects the equipment they require. They are then permitted to use the equipment by the leasing company during the period of the lease by paying a pre-determined lease rental but the legal ownership remains with the leasing company (lessor).

With such deals normally the VAT is paid in advance as a deposit and most leasing companies offer the goods to the user at the end of the term for a pre-determined cost although this of course is a lease hire with the exception that 20% of the total invoice value was paid up front as a deposit. Thus on paper a lease purchase often looks less expensive than a lease hire arrangement since you are only leasing 80% of the true value of the goods.

In a hire purchase arrangement the owner of the equipment (the leasing funder) undertakes to hire the goods for a pre-determined fixed term and to transfer the ownership of the equipment at the end of the term when all the instalments have been duly paid. These deals can be set up without the requirement for a VAT deposit (although some deals will still need a deposit where credit is weak). This makes a lease hire arrangement more affordable for new start business who may have a large initial capital requirement and may be able to do so for significantly less than 20% of the capital costs.

Hire Purchase Vs. Leasing

The main difference between a lease hire or a lease purchase is in terms of the ownership of the equipment and the treatment that the acquisition is given in terms of it accountancy.

Whilst in the case of a lease purchase, the ownership of the equipment remains with the leasing company for all time, for a lease hire the ownership of the equipment goes to the individual making use of the equipment – but only at the end of the contract when the last instalment is paid by him. Therefore lease hire is sometimes known as a “conditional sale”.

Whilst the physical garage equipment appears in the books of the lease funder as assets to the company, to the purchaser they are treated as fixed assets eligible for depreciation over time.

The Advantages of Leasing

  • Saving of Capital: Leasing covers the full costs of the equipment without the need for the initial full investment, this means that working capital can be maintained within the business.
  • Payment terms of rentals: The repayment period can be agreed against the cash flow requirements of the operator
  • More Financially Liquidity: Leasing helps owners who are having liquidity problems as at the end of the term the equipment can be sold on, after being re-valued, and new equipment can be obtained if required on a new lease hire basis.
  • Tax Efficiency: Lease rentals are fully tax deductible as operating

Garage Equipment Technology (Leasing) LLP [OC329191] are registered at the FCA to broker lease hire deals on behalf of Garage Equipment Technology Ltd.

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