This is designed for businesses that wish to operate equipment and vehicles with fixed rentals, minimal administration and without affecting balance sheet ratios.
The customer can never obtain title to the asset and at the end of the contract the equipment is returned to the supplier or finance company.
The asset does not appear on the balance sheet and rentals are offset against taxable profits. VAT is payable with each rental and can be claimed back within the VAT period.
The benefits of an operating lease are:
- Rentals are usually lower than a standard hire purchase or finance lease
- Earnings to assets and gearing ratios are improved
- Total budgetary control as all costs can be built in and fixed for the term
- Operating lease is normally only available to businesses