It is common for accountants to offer advice on leasing as many often wonder if it is a good deal, how the cost is recorded and do the leased goods become an asset, but this is all dependent on the type of lease.
A lease allows a limited company to use an asset without actually purchasing it, but when it comes to making the choice it is not often clear as to which lease you have agreed to.
Throughout the running of your business you will come across two types of lease – an operating leas and a financial lease.
The Rules For Your Business
An operating lease is very much like a rental. What this means is that the company you are purchasing from will still own the machine but they are usually the ones in charge of maintaining it and also replacing it once it is no longer useful. In this instance the company is not taking ownership of any assets which means that the whole cost can be classed as a business expense for the duration of the lease.
Financial leases can be more complex and they lead up to actually purchasing the item and therefore becoming responsible for it through paying for it over a period of time which will also include interest. This could be the case for a company vehicle and it would become an asset in the same way as it would if you purchased it completely. However, Capital Allowance which stands at 20% can then be claimed on the van but the interest can only be claimed as an expense. Essentially, a financial lease is very similar to taking out a loan but it comes in the form of an asset instead of a lump sum.
Remember that it is always vital to find out what sort of lease you are entering into, whilst it can be obvious it is sometimes possible to miss it but it is sometimes best to seek advice.