Under a lease agreement the lender acquires the asset from the supplier and leases to you on a monthly basis. In view of the fact that leasing is a service all monthly rentals, including deposit, would be subject to VAT.  A VAT statement is issued annually which allows you to claim back the Vat each quarter. The level of deposit would depend upon your trading history and the age and life expectancy of the asset being financed. At the end of the lease you can either:

1. Return goods to the lender (this rarely happens)
2. Pay an annual peppercorn rental (this normally equates to one monthly payment) for a further year’s use of the asset(s). This rental continues until the goods are either sold or scrapped.
3. Sell, or part exchange, the goods to a third party. You will normally retain between 95% and 99% of the value/equity in the asset although the level of rebate varies from case to case. The percentage will however be clear at the outset of the agreement.

The benefits of leasing are as follows;

1. Minimum Outlay: No Vat on purchase price is payable by you only Vat on rentals. Your part exchange could serve as your deposit therefore no initial outlay would be required.
2. Tax Benefit: Rentals payable* can normally be offset against taxable profits.

* Other than those on motor cars