A finance lease is a type of commercial lease. The finance firm is the legal owner of the asset, and the user leases the item for a certain length of time. The leasing firm, which is often a financial corporation, is referred to as the lessor in this legal arrangement, and the person who will be using the asset is referred to as the lessee.
After entering into this arrangement, the lessee acquires operational authority over the asset. Ownership of the asset entails accepting full responsibility for all of the risks and benefits connected with it. The lease provides the lessee with the economic characteristics of ownership of the asset for accounting.
The item will be recorded as a fixed asset in the general ledger of the lessee’s company. In this case, the lessee will register the interest on the lease payment as an item of expenditure on their accounting records.
Benefits of Leasing
A Ford Transit custom finance lease provides business clients with access to an asset that is newer and higher in specification than the asset they might otherwise purchase outright. Instead of making a substantial upfront commitment, the asset’s cost is paid in monthly payments over time. In this case, the cost is spread out over time and paid in predetermined monthly instalments that will not increase – even if interest rates at the bank climb.
Tax Advantages
Several tax benefits exist, including the fact that VAT is due on rents rather than the purchase price and that rentals may be deducted from taxable earnings (special rules apply to cars). On commercial vehicles, you may claim up to 100% of the VAT, while on automobiles, you can claim up to 50% (subject to being VAT registered).
More Options to Choose From
Leasing is also more affordable than purchasing. This provides you with greater choice in terms of vehicle selection, allowing you to select the car that best suits your needs.
The duration of a commercial lease is anywhere between 48 to 60 months. Given the short length of lease contracts, you may drive a new automobile equipped with the latest technology and safety requirements without the commitment or difficulty of trying to purchase or sell your existing vehicle when it’s time to upgrade. Once your lease expires, you simply return the commercial van, select your next vehicle, and sign a new lease with the same company.
