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Hire Purchase
- Pay for the asset over a period of years
- usually 3 to 5 years.
- The asset is hired during the hire period
but once the final instalment has been
paid then the asset will be owned outright.
- Capital allowances (a tax relief which
reduces the taxable profit) can be claimed
when you start to use the asset
- You can get also get tax relief on the
interest paid.
Leasing
- If
the asset is leased you do not own it
but you may be able to buy it at the end
of the lease.
- You
do not claim the capital allowance on
the asset.
- You
will get tax relief on all of the lease
payments.
- VAT
is payable on the lease payments which
can be reclaimed if your company is VAT
registered.
There are different sorts of leases
- be careful! The main types are as follows:
- Close-ended:
At the end of a fixed period there may
be an option to take on a further lease
at a very low lease or there may be an
option for you to buy the asset.
- Open-ended:
You can end it anytime you like after
the end of an agreed minimum period.
- Balloon
Lease: There are low rental for the
period of the lease followed by a large
final payment at the end of the lease.
Contract
Hire
- This
is a form of leasing, mostly used for
the financing of a fleet of vehicles.
The length of the agreement is usually
shorter than the estimated useful life
of the vehicle.
- The
use of the vehicles may be provided with
or without the maintenance.
- You
may be able to arrange to buy the vehicle
at the end of the agreement.
Sales Finance
- Money due from your customers in 30days or more can be advanced to you by sales finance companies (also called factoring companies) within a week of raising the sales invoices, using the debtors as their security.
- This is a way of increasing your cash flow but is only useful if you have increasing sales level, it is also more expensive than bank overdrafts or loans.
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