Leasing and Finance

SAVE YOUR CAPITAL & LEASE

Demand for alternative ways to finance the fitting out of buildings when relocating to new premises, especially furniture, fittings are on the increase and so are the forms of funding available. Malcolm Jeary, Managing Director at Spaceway South, one of the UK's leading providers of integrated interior space solutions, discusses the rise of asset-based lending.

Every business has five major components, which must work together in order to function effectively. These are: Personnel, Equipment, Premises, Product & Services and finally, the most vital 'Capital' - without cash resources, no organisation can continue to exist, 'Capital is the 'Lifeblood'.

Traditionally, businesses seeking finance have tended to use bank overdrafts and loans often secured on property. Many small business owners who wish to raise funds rely on their business overdraft, remortgage their businesses premises or even put their own home as risk to raise equity. Now, it is possible to lease furniture, fittings and racking, which not only safeguards capital for other uses but also is far more cost effective.

If you pay for the furniture and refurbishment of your building from your cash flow, only a limited percentage is allowable for tax purposes. Because of the ‘intangible’ elements, the Revenue only allows you to claim capital allowances against approximately 65% of the project. However, if you lease the works, the repayments are 100% allowable unlike any other form of finance such as a bank loan. This 100% allowance on payments makes leasing the most tax efficient method of refurbishing a building and can work out cheaper than paying cash.

Leasing is fully allowable against taxable profits, regardless of the assets being financed. If the project is funded using a bank loan (or cash), the Inland Revenue puts restrictions on how much of the project qualifies for capital allowances. Deloitte & Touche have carried out a review of completed Plus Finance projects and calculated that on average 65% of a typical fit out project (excluding furniture) would qualify for capital allowances. Furniture is 100% allowable.

Lease payments are fixed for the period allowing one easy monthly or quarterly payment for the total office interiors solution including furniture and all the ‘intangible’ elements such as fitments, storage and racking, cabling, building works etc. A company can add furniture to an existing lease at any point during the term. Companies can either extend the term and keep the payments the same, or simply increase the payments and keep the end date the same. In addition, the term of the lease can be for anything between one and five years.

Types of Finance

LEASE RENTAL

• Payments are 100% tax deductible
• VAT is payable on each rental and reclaimed in the usual way
• Payments can be made monthly, quarterly or yearly
• Payments are made by direct debit or by invoice at small increase in rate
• Options at the end of the period:
  1. Continue to rent the furniture at a very small monthly charge
  2. Return the furniture to us
  3. Negotiate ownership of the furniture via a third party for a nominal charge.

LEASE PURCHASE

• VAT is paid in advance
• Payments can be made monthly, quarterly or annually
• Payments are made by direct debit or by invoice at small increase in rate
• At the end of the period, the furniture automatically becomes your property
• Payments are NOT 100% ALLOWABLE
• Customer claims capital allowances as per cash purchase

OPERATING LEASE

As per Lease Rental, except: -

• Residual value built into the agreement
• Means much lower rentals
• Rentals are Off balance sheet
• NO ownership possibilities at the end
• Lease can be extended via negotiation with the residual underwriters

BUYBACK

Some finance companies offer buyback options whereby: -

• Customer sells existing furniture back to the finance company.
• The finance company give them cash for the furniture as an injection back into the business
• New furniture is added to the cost of the existing furniture
• A lease is set up for total amount

Each and every component of the business structure grows and wanes throughout its development; the only consistent factor is the growing need for capital. From the strongest economy, to the worst recessions, capital will always be a prime resource - more personnel and stock, motor vehicles and equipment, stock and premises, the demand on capital in a growing business is insatiable. By leasing furniture, fittings and refurbishment enables other lines of credit from banks or other finance houses to remain intact for other credit needs. In addition, leasing can ease the strain on your working capital and provide finance with no deposit.