Guide to leasing options if you trade as a limited company

There are a number of leasing options when it comes to business assets. Getting it right can make a significant difference to a trade’s success. It’s a long-term commitment to how a limited company chooses to finance the assets it needs to grow.

The number of businesses taking lease finance options is increasing. According to the Finance & Leasing Association, the volume of new leasing and finance business is on the up. It grew 15% in the first eight months of 2023 compared with the same period in 2022.

What does leasing involve?

Leasing is an agreement to rent a business asset for a set period. You make usually monthly payments and at the end of the lease period, you return the asset.

Lease periods are typically three or five years – or longer. It will depend on the types of assets your limited company leases.

Differences between leasing and buying a business asset

The question of asset ownership is the big difference here. There is also another option, usually called lease purchase or lease-to-buy.

This is a mix of the two. You lease the asset in the usual way and then have the option of buying it at the end of the contract.

Often, limited companies take up a new lease on a new asset when the old one expires. That way, you have continuous use of an asset without ever actually owning it. Plus, the benefit of getting a new one.

What can you lease?

Assets you can lease through your limited company include:

• Vans
• Cars
• Plant
• Machinery
• Equipment
• Power tools
• Computers

Questions you need to answer when you lease

• Do I prefer to lease (rather than buy) assets for my limited company?
• How much can I afford each month on leasing charges?
• How long will I need to use the asset?
• Will the asset become obsolete before the end of the lease contract?
• Will I want to take out a new lease and get a new asset when the old lease contract ends?

What leasing companies will want to know

A leasing company will need to know a few things about your limited company, including:

• How many years your limited company has been established
• Your credit history
• The industry you work in
• The types of business assets your limited company wants to lease

Why lease an asset through your limited company?

Here are some of the main reasons that a trade operating as a limited company might opt to lease rather than buy its business assets:

Cash flow and financial planning benefits

• You know exactly how much you will be paying each month during the contract period
• You probably won’t have as much to pay at the start, like a deposit that may be required when you buy an asset
• Large chunks of your company’s money won’t be tied up owning expensive assets. This gives you the flexibility to invest that money in growing your business
• You can hand assets back at the end of the lease (and get a new contract on a brand-new asset, if you like). That means you don’t have to worry about the asset losing value – called deprecation – over its life

You can reduce your tax bill

You can use lease payments to reduce your taxable profits. The payments are treated as business expenses.

If your limited company is VAT-registered, then you can reclaim the VAT on your lease payment.

You can reduce your business running costs

The leasing company may cover certain payments relating to using business assets. Often, lease contracts include a number of costs associated with using the assets. These could include:

• Repairs and spare parts
• Maintenance
• Servicing
• Breakdown cover (such as replacing the asset if it breaks)
• Road tax (for vans and cars)
• Insurance

You can build your business

It can be hard for tradespeople to plan for the future in terms of the assets they need. With leasing, you can keep adding assets as your business grows.

That way, you won’t be the owner of assets that you don’t use or need. Plus, you can flexibly add to or reduce your portfolio of business assets more conveniently than if you owned them.

What’s not included in a lease contract?

• You probably won’t be able to adapt or modify the asset
• You likely can’t put your logo on the vehicles or equipment
• You’ll probably be charged for any damage to the asset when you return it at the end of the contract
• As you don’t own the asset, you can’t sell it

What are the benefits of vehicle leasing?

One of the major assets used by a trade operating as a limited company is likely to be vans or cars. There are pros and cons of leasing a car or a van through your limited company.

Van and car lease contracts often include:

• Annual road tax
• Annual MOTs

However, there are likely to be limits on annual mileage.

What are the advantages of equipment and power tool leasing?

As well as vehicles, there are lots of other types of business assets that limited companies can lease.

Equipment leasing

Limited companies lease equipment from small items for offices, like chairs and tables, to much larger pieces of kit. These can range from pneumatic drills and forklifts and production-line machinery and computers.

Tradespeople are likely to look to leasing for:

• Property – including workshops, warehouses, storage and offices
• Plant
• Machinery
• Computers, laptops and smart devices
• Office
• Security and CCTV equipment
• Heating and air conditioning
• Shopfitting equipment
• Freezers and refrigerators
• Generators

Power tool leasing

Power tools can be the mainstay of many trades. Limited companies can lease power tools for multiple essential tasks, including:

• Drilling
• Welding
• Cleaning
• Sawing
• Screwing
• Chiselling
• Cutting
• Grinding
• Milling

As with general equipment and vehicle leasing, the benefits can be extensive for tradespeople. With a leasing contract, you could arrange to have power tools:

• Replaced with new ones at the end of the lease contract so you have the latest versions
• Repaired, serviced and maintained during the lease period
• Spares provided when required

Key takeaways

• Leasing a van through a limited company is beneficial if you regularly want to replace vehicles
• Business equipment leasing makes sense if items are expensive and cash flow is tighter
• Power tool leasing has advantages if they are likely to wear out and need replacing but have no value for resale