leasing / hp / rental etc

hi,

I am IT company, I went to see a customer today who is buying about 10K of IT equipment.

He has a quote from another IT company, which he showed me. It says, for example Server - cash price 2000, 3 Year lease per quarter 200. All the 3 year lease quarterly charges seem to be 10% of the cash price - even on labour charges??

I told customer I have a contact in lombard tricity finance who he can speak to about funding the purchase then he says he wants to lease rent the kit not lease purchase and stupidly I failed to ask why. Now I have done the quote for cash price I am sitting here wondering why he wants to rent and how I work it out with my finance company.

If it is because he does not want to own the kit and therefore be responsible for hardware failure etc then thats fine but I dont know how the finance company can sort that out?

Just to clarify, the other quote I saw was through another IT company and finance was through BNP bank.

Does anyone know how this rental thing works? I guess I could understand if the supplier of the hardware and the kit was the same company but when there is a small IT company supplying and a big international finance company financing it I am a bit lost

does any one here know whats going on with this?

Reply to
<me
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I do remember customer mentioning better tax benefits of renting over buying. does that help? could that be it in a nutshell?

Reply to
<me

In message , snipped-for-privacy@privacy.net writes

From the lessors & lessees point of view the tax and accounting is different depending if it is a finance lease or an operating lease. The difference is determined by who takes the operating 'risk'. Sometimes the difference is sometimes hidden by the finance co calling one 'lease' and the other 'rent'.

Have you got a consumer credit licence?

Reply to
john boyle

Yes, the other IT is essentially bundling the bank's finance with its own support/installation services because (a) the IT company doesn't have its own capital to offer finance and (b) thebank doesn't have the marketing coverage to cover every purchaser of IT equipment so it works through IT suppliers. Your customer will ultimately end up with a financing agreement with the bank and a servicing agreement with the IT company (although he may not see that the bank is involved (i.e. will take back the equipment if he doesn't pay) unless he reads the very small print.

The tax rules on leasing are likely to change at the next budget. Draft legislation has been produced but it is not yet complete. In any event if your customer gets his equipment before 1 April 2006 the new leasing rules will not apply.

Under the old rules, the owner of plant and machinery (or a company taking plant and machinery under a hire purchase agreement) is entitled to claim capital allowances generally at 25% per annum on a declining balance basis. When a company has taxable profits, this usually means that it is usually more economical on an after tax basis to own the equipment and claim the capital allowances. A company which has ongoing tax losses may prefer to lease the equipment from a leasing company or bank who can claim the capital allowances and reduce the level of rent to allow for some of the taxbenefits that the bank gets.

Howver this is often not the case for computers, particularly if you assume that they have a life of less than 4 years. In 4 years at 25% writing down allowances, the owner would claim 25% of the cost in the first year, 18.75% in the second year, 14.06% in the third year and 10% in the fourth year (i.e. about 68% of the equipment cost. On the other hand if the equipment was leased, the company would have been able to claim 100% of the equipment cost plus finance charges (i.e. all of the rent payments), so in that case leasing represents the better choice to a company with taxable profits.

The rates that you quoted look on the steep side, but that would depend on whether the rents were actually 10% of the cash price. If the rents were a little lower that would not be at all bad as a rate, but your customer needs to look at the all-in cost after tax of leasing and compare it with the after tax cost of taking out a 3 year loan from the bank to buy the equipment for the cash price.

Reply to
Mark Williams

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