Equipment leasing

Equipment leasing lets your business use equipment for a fixed monthly rental while the funder owns it and claims the capital allowances. VAT is charged on each rental, so there is no large VAT payment at the start. On a finance lease you carry the equipment’s value at the end; on an operating lease you hand it back and the funder carries it.

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How equipment leasing works

The funder buys the equipment you choose from your supplier and leases it to your business for a fixed term. You pay a rental each month or quarter, sometimes with one or more rentals in advance. The funder stays the owner throughout. Ownership never passes to you under the lease, which is the legal difference from hire purchase.

There are two kinds. A finance lease runs for most of the equipment’s working life and the rentals pay off close to its full cost plus interest. The business carries the risk of its resale value at the end. An operating lease runs for part of the working life. The rentals cover the fall in value over the term plus the funder’s return, and the funder takes the equipment back and resells it. Contract hire of vehicles is an operating lease.

Leasing spreads the VAT. On hire purchase you pay VAT on the whole price at the start; on a lease each rental carries its own VAT. A VAT-registered business reclaims it either way, so the difference is cash flow: on a £60,000 machine, £12,000 of VAT up front against VAT on each rental across the term.

Leasing also moves the capital allowances to the funder. The funder claims them on the equipment it buys and prices that into the rental. For a business that cannot use the allowances, because it makes losses or pays little tax, that can make a lease cheaper overall than buying.

Finance lease, operating lease and hire purchase compared

Finance leaseOperating leaseHire purchase
Owner during the termThe funderThe funderThe funder, until the last payment
Owner at the endThe funderThe funderYour business
Length of termMost of the working lifePart of the working lifeAgreed term, often most of the working life
What the payments coverClose to the full cost plus interestThe fall in value over the term plus the funder’s returnThe full cost plus interest, less any balloon
VATOn each rentalOn each rentalOn the full price at the start
Capital allowancesClaimed by the funderClaimed by the funderClaimed by your business
Value at the endYour risk, through the final saleThe funder’s riskYours, as owner

Tax for a company that leases

A company that leases equipment deducts the cost of the lease from its profits. How that cost falls into each year follows the company’s accounts. For accounting periods beginning on or after 1 January 2026, the revised FRS 102 puts most leases on the lessee’s balance sheet, as an asset and a liability, in place of a rental charge. The charge in the accounts becomes depreciation plus interest. Micro-entities preparing accounts under FRS 105 are not affected. If your accounts follow FRS 102, ask your accountant how your leases will show and how the tax deductions will fall, because loan covenants measured on gearing or interest cover can move too.

The funder’s tax position shapes the rental. Plant bought for leasing is excluded from full expensing, apart from background plant in a leased building. Since 1 January 2026, leasing companies can claim a 40% first-year allowance on new main-rate plant they lease to UK businesses. The Budget on 28 October 2026 raised that to 50% for expenditure from 1 January 2027. Earlier relief for the funder can feed through into the rentals it quotes.

Cars are different. If a leased car emits more than 50 grams of carbon dioxide per kilometre, 15% of the rental is disallowed for tax, and half the VAT on the rentals is blocked where there is any private use. Vehicle finance covers this.

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Who leasing suits

Leasing suits equipment that loses value or goes out of date before you are finished with it: computers and servers, telephone systems, medical and dental equipment, print and copy machines, and vehicles you replace on a cycle. An operating lease keeps the risk of obsolete kit with the funder.

It also suits a business that wants a fixed monthly cost with no large VAT payment, and one that cannot use capital allowances in the near term. A profitable company buying new plant it will keep for ten years can pay less overall on hire purchase, claiming full expensing itself. Run both through the asset finance calculator with the quotes you receive.

At the end of the lease

Secondary rental

On a finance lease you can keep using the equipment for a small annual or monthly rental, set in the agreement, for as long as you need it.

Sale for the funder

On a finance lease you can sell the equipment to a third party as the funder’s agent. You receive the share of the proceeds the agreement sets.

Return

On an operating lease you hand the equipment back. The funder inspects it and charges for damage beyond fair wear and tear or use over any limit.

Replace

You can start a new lease on newer equipment, and the funder collects the old kit. Settling one lease early to start another carries a settlement cost.

What to check before you sign

The rentals are payable for the whole term whether or not the equipment works. If it breaks down, your claim is against the supplier or the maintenance contract, and the rentals keep running while you make it. Check who maintains the equipment and who pays for repairs.

Ask for the early termination cost in pounds. Ending a lease early can mean paying most of the remaining rentals, less a discount the agreement sets. On an operating lease, read the return conditions: the state the equipment must be in, who pays to collect it, and the charges for excess use.

The business insures the equipment for its full value, with the funder named on the policy. A small or young company may be asked for a personal guarantee from its directors, which makes them answer for the rentals if the company cannot pay.

The funding search through Swoop is for limited companies and LLPs, and for sole traders and partnerships borrowing more than £25,000. Leasing of £25,000 or less to a sole trader or small partnership is regulated, and they should go to their own bank.

Asset finance calculator

The monthly payment on equipment or vehicle finance with a deposit and a balloon payment, and what the finance costs in total.

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Questions people ask

What is the difference between a finance lease and an operating lease?

A finance lease runs for most of the equipment’s working life, the rentals cover close to its full cost, and the business carries its value at the end through a secondary rental or a sale. An operating lease runs for part of the working life, the rentals cover the fall in value, and the funder takes the equipment back and resells it.

Is equipment leasing tax deductible?

Yes. A business deducts the cost of a lease from its profits. The timing follows the accounts, and for periods beginning on or after 1 January 2026 the revised FRS 102 splits that cost into depreciation and interest for most leases. Leased cars emitting more than 50 grams of carbon dioxide per kilometre have 15% of the rental disallowed.

Can I claim capital allowances on leased equipment?

The funder owns leased equipment, so the funder claims the capital allowances and the business deducts the lease cost. If you want to claim the allowances yourself, including full expensing on new plant, buy the equipment outright or on hire purchase.

How is VAT charged on a lease?

VAT is charged on each rental, so there is no large VAT payment at the start. A VAT-registered business reclaims it on its returns under the normal rules. For cars with any private use, half of the VAT on the rentals is blocked.

Can I end an equipment lease early?

Usually only by paying a termination sum set in the agreement, which can come close to the remaining rentals less a discount. Ask for the figure before you sign, for an exit after one year and after two. Some funders allow an upgrade, settling the old lease into a new one, at a cost built into the new rentals.

Is leasing better than buying equipment?

It depends on the asset and the business. Leasing suits equipment that dates, a business that wants fixed costs with VAT spread across the rentals, or one that cannot use capital allowances. Buying or hire purchase suits equipment you will keep for years, especially for a profitable company that can claim full expensing on new plant.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Assets and property

Hire purchase for business

Hire purchase spreads the cost of an asset over monthly payments, and the business owns it once the last one is made.

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Asset finance

Asset finance spreads the cost of equipment, vehicles and machinery over the years you use them, with the asset as the funder’s security.

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Vehicle finance for business

Vehicle finance covers vans, cars and fleets through hire purchase, lease purchase or contract hire.

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Asset refinance

Asset refinance raises cash against equipment, vehicles or machinery the business already owns.

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

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